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## Why is exempt interest still included on line 2a still showing included in total for 2b on the 1040?

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Level 2
last updated ‎December 07, 2019 8:01 AM

I am doing a 1040 for a client that is a 1041 beneficiary. On the K-1 line 1 it shows interest income of \$736 and then on line 14a it shows tax exempt amount of \$720. On the 1040 it shows the tax exempt interest of \$720 on line 2a, but is still including this amount on line 2b. How do I get ProSeries to actually subtract the taxable amount on line 2b? Also on the K-1 it is showing \$3909 on line 5 and then it is showing -3909 on Line 14H as an adjustment to 1411 NII. So is this amount still taxable on the 1040 - just not the 8960 for the additional tax calculation?

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Level 8
last updated ‎December 07, 2019 8:01 AM

By entering your numbers on a test return I cannot duplicate the problem you are having with the tax exempt interest of \$736.  Are you using Pro Series Professional or Basic?

You are correct on the \$3909 being taxable on the 1040 but is not included in the total on Form 8960.

5 Replies 5
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Level 8
last updated ‎December 07, 2019 8:01 AM

By entering your numbers on a test return I cannot duplicate the problem you are having with the tax exempt interest of \$736.  Are you using Pro Series Professional or Basic?

You are correct on the \$3909 being taxable on the 1040 but is not included in the total on Form 8960.

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Level 10
last updated ‎December 07, 2019 8:01 AM

Line 1 on the 10401 k-1 is ordinary interest income. Line 14 a is TE income. They are two distinct items.

In my dummy return, I entered your two items on the k-1. On 1040 line 2a was \$720, and one line 2b was \$736. Only line 2b is added into income on line 6. Does your line 2b show \$720+\$736=1,456?

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Level 2
last updated ‎December 07, 2019 8:01 AM
on line the K-1 is \$736 which shows up on shedule b but then there is line 14a on the K-1 that exempts \$720 of the \$736; therefore, only 16 should show on line 2b of the 1040 and the whole 736 is showing up. Your right the 720 shows on line 2a it is just that I don't see where it subtracts the \$720. On the schedule b there is \$1128 total (\$268, \$124 & \$736). Also it did not carry to the MI State 1040. Do you think I should enter the k-1 in 2 parts and see if that makes a difference?
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Level 8
last updated ‎December 07, 2019 8:01 AM
The way you are describing the K-1 there is \$736 of taxable interest and \$720 of tax exempt interest.
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Level 10
last updated ‎December 07, 2019 8:01 AM
Line 14a is not related to line 1 of the 1041 k-1--they are two different animals. <<They are two distinct items.>>
The way you stated the k-1, to agree with poolcleaner, there appears to be \$1,456 of total interest, of which \$736 is line 1 ordinary and line 14a is TE.

This statement: << but then there is line 14a on the K-1 that exempts \$720 of the \$736; >> is not correct.
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