1040 states: Entering U.S. obligations and exempt interest for state return processing

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Question

How do I enter information for U.S. obligations and exempt interest so that the state application makes the correct adjustment?

Answer

In the Interest income and Dividend income statement dialogs in Screen B&D, K1, K1T, and 8814, you will find columns for US Ob $ or % and In-State Muni $ or %.

If any portion of an income amount is attributable to U.S. government obligations, enter the tax-exempt percentage or amount in the US Ob $ or % column. (Enter the percentage as a decimal; for example, 12 percent would be entered as 12.000. Amounts are entered without a decimal and display as 12$.) This percentage will be applied only to amounts in the regular ( not tax-exempt) column of the Interest income and Dividend income statement dialogs.

Enter the total tax-exempt interest and dividend income (including interest or dividend income from private activity bonds) in the appropriate column of the Interest income and Dividend income statement dialogs. If any portion of the income is state tax-exempt, enter the tax-exempt percentage in the In-State Muni $ or % column. (Enter the percentage as a decimal; for example, 7.25 percent would be entered as 7.250. Amounts are entered without a decimal and display as 12$.) This percentage will be applied only to amounts in the Tax-exempt column of the Interest income and Dividend income statement dialogs.

In Screen B&D, use Type Code 7 for Series EE or I bond interest eligible for the Form 8815 exclusion. The US Ob % column defaults automatically to 100.00 (100 percent) when you enter 7 in the Type Code column.

Note: Refer to Multiple-state Processing and Interest and Dividend Income for a discussion of interest and dividend data-entry with multiple-state returns for a single client.

Related topic: 1040 state - Common data entry questions

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