Taxpayer, a trust, received a Form 1099-INT reporting interest received that included a source that is taxable for Federal income tax purposes, but exempt from California income tax. Can this be entered on the Form 1041 Schedule 1099-INT Worksheet so that the proper amounts will flow to the Federal and California tax returns or does an adjustment have to be made on the California Form CA-541 and, if so, where would that adjustment be made in ProSeries?
Thank, Lisa. However, I'm not sure if I explained the problem correctly. As an example, the client received a Form 1099-INT showing $1,000 in Box 1. This will flow the $1,000 to the state (California) tax return. However, of the $1,000, the sum of $900 was from California bonds that are taxable for Federal Income Tax purposes, but Exempt from California in come tax. The solution you suggested will not work in the example I just provided.
The 900 is included in the 1,000. This is an area not generally understood, or, for that matter, rarely seen by tax practitioners. Here is a link that may help in understanding the nature of this interest: https://www.investopedia.com/terms/t/taxable-municipal-bond.asp.