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Entering Tax-Exempt Interest in a 1040

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Intuit

Entering Tax-Exempt Interest in a 1040

How do I enter Federal tax-exempt interest on Schedule B?

How do I enter State tax-exempt interest on Schedule B?

Solution Description

For 2010 and Newer:
On Schedule B, in the Interest Income Smart Worksheet, Box 8 Tax-Exempt Interest, enter the amount that is tax-exempt for Federal purposes.  Use the State ID column to indicate state treatment of the interest.  The tax-exempt interest amount may be split among several states by using the State ID code of MX  and completing the Tax-Exempt-Interest State Allocation table on the Interest Income Worksheet Additional Information.
For example: Form 1099-B was received by a New Jersey resident from Fund "A" with Box 8 amount of $1699, of which 18% is also tax-exempt for New Jersey.  To enter this in the software you would complete the following steps:
  1. Open Schedule B - Press F6 to open the Forms Menu, type the letter B and press Enter
  2. Enter the Payer Name Fund "A"
  3. Enter $1699 in Box 8 for Total Tax-Exempt Interest
  4. Enter the State ID of MX

  1. Double-click on the Payer Name field to access the Interest Income Worksheet Additional Information
  2. Scroll to the Tax-exempt-Interest State Allocation table
  3. On the first line enter NJ for the resident state ID in column a and 18 in column b for the percent of total interest for state
  4. On the second line enter XX for all nonresident states in column a and 82 in column b for the percent of total interest.

For TY2009 and previous years:
On Schedule B, in the Interest Income Smart Worksheet,  Box 8 Tax-exempt Interest, enter interest that is tax-exempt for Federal purposes. Use the  State ID column to indicate state treatment of the interest. See Tax Help for Schedule B for information on the State ID and valid territory codes.
The tax-exempt interest amount may be split and entered on multiple lines to enable use of more than one State ID code. (Please refer to the image below for coding examples.)
  • Using a two letter State code will cause the Box 8 interest to be tax-exempt in that state.
  • Using "XX" for the State code will cause the Box 8 interest to be taxable in all states.
In Box 9 Private Activity Bond, enter the amount of private activity bond interest included in Box 8. The amount entered in Box 9 will flow to Form 6251, on the line for "Interest from specified private activity bonds exempt from the regular tax". Note: If the percent of private activity bond interest is entered on the Additional Interest Information, line C, the amount in Box 9 will be replaced by the result of Box 8 times the percentage entered.
Additional Information: For Tax Year 2006, the IRS changed Form 1099-INT to add Box 8 for Tax-Exempt Interest. The instructions no longer had the paragraph for Tax-Exempt Interest, saying it should be entered like nominee interest. Accordingly, Schedule B no longer lists tax-exempt interest entries. The total amount of Federal tax-exempt interest flows to the applicable line of the 1040, 1040A, or 1040EZ.

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