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CA Tax Free Interest from Mutual Funds

December 19, 2016 • Don Baker • Log In to Post Comments

The law under R&TC Sec. 17145 states that interest income can only be excluded, if at least 50% of the assets held by a mutual fund consists of interest bearing obligations that are tax-free for California purposes.  This includes U.S. and California obligations.  So does that mean that if 70% of the assets in a mutual fund are assets which are tax free for California, and the total interest from the fund is $100, then $70 is tax-free for California purposes, and the other $30 is taxable?  Or, is the entire $100 tax-free for California purposes? 


The $70 is tax free


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