Municipal (tax-exempt) interest: 1040 Indiana (IN)

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Indiana taxes interest on non-Indiana municipal obligations purchased after December 31, 2011. On the federal B&D screen, in the Income folder, federal K1-2 screen, or federal K1T screen, in the Dividends or Interest sections, enter State use code 7 for any municipal interest that is taxable to Indiana. Tax-exempt interest with code 7 is reported on the Indiana Interest and Dividends Worksheet and as an add-back on Schedule 1 or Schedule B.

Indiana does not tax interest on such obligations if purchased on or before December 31, 2011. If data entry does not include code 7, the municipal interest is assumed not taxable to Indiana and therefore omits the amount from Schedule 1 and Schedule B.

For K1 and K1-T activities, the data entry in the Dividends or Interest sections is used to determine the add-back amount to report on the Indiana Interest and Dividends Worksheet and Schedule 1 or Schedule B. Use the fields on the K1-St screen in the K1 or K1T activity to force the amount of add-back for the activity.

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