Entering source tax-exempt interest or dividend income for a state tax return (1041)

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Use the following procedure to enter tax-exempt interest or dividend income that is considered source tax-exempt income for a state tax return.

  1. In the folders block, click the Income folder to open Screen Income.
  2. Click the statement button for the Interest income (including foreign source) field.

    Note: The same statement is available on Screens K1 and K1T for the Interest income including tax-exempt field.

  3. Enter a postal code in the Postal Code column. If the postal code column is blank, the state will not recognize the amount as source income.
  4. Enter an amount or percent in the InState Muni ($ or %) column to indicate the portion of the Total Tax Exempt column that is considered source tax-exempt income for the state indicated in the Postal code column. If this field is blank, no portion of the tax-exempt income will be considered source tax-exempt income.

Notes

  • Each line in the statement is a separate entry. A postal code and source amount or percent is necessary for each line.
  • Enter private activity bond interest amounts in both the Total Tax Exempt column and the Private Act Bond Portion column. Form 1041, Schedule I uses the private activity bond amount.
  • The same columns are available for the same purposes in the statement for the Dividends (including foreign source) field.

Related topics

1041-US: State processing FAQs

1041-US: Tax-exempt income FAQs

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