Tax-exempt Interest

[JJudd]

I’m working on tying out the tax‑exempt interest reported on Form 1040, line 2a. The return involves several different sources of tax‑exempt income (bond premiums, accrued interest, OID, etc.).

I don’t see a summary or supporting statement that shows how the total on line 2a is composed, nor can I find a clear reconciliation back to the Schedule B adjustments.

Is there a standard report, worksheet, or IRS form attachment that should provide this breakdown? I am not seeing anything being created in the return. My issue is my manual calculation, and the system calculation don't agree and without know what the system is including it's a pain to track down the issue.  Any guidance on statements/summaries that I may be missing or even Proconnect best practices for reconciling these amounts would be appreciated.

[sjrcpa]

I don't know, but check if the difference equals the accrued interest.

Sometimes it gets added to the TEI instead of subtracted from. Input error.

[PhoebeRoberts]

Also, check to see if the discrepancy is twice the OID amount. The software treats OID entered in the OID field as a subtraction. I handle OID income by creating a second input line with the same name as the main account, followed by OID, and entering it as normal interest income.

[BobKamman]

Does the accrued interest on bond purchases exceed the interest received from them?  Sometimes you have to avoid entering either of those numbers. 

I used to have a client with a "consultant managed account" that traded in muni bonds.  Sorting it out was a nightmare.  Fortunately she died.  

[PhoebeRoberts]

I have a client who pays accrued interest on a bond purchase in Account 1, then transfers the bond to Account 2 before the interest is collected. Lacerte (works pretty similarly to ProConnect) doesn't complain about that too much, but they're not munis.

My understanding is that you can only net accrued interest against interest received from that same bond. I used to have a spreadsheet that matched it all up to figure out how much accrued interest got deducted in the current year and how much had to be carried forward to the next year. Fortunately, the account was moved to a different reporting company who does that math and gives me a nice schedule by state.

[Kathi_at_Intuit]

Hi @JJudd Welcome to the community and thanks for posting your first question!  If using the 1099-INT screen it should detail the interest on the Sch B and then generate a statement if there are too many to fit on Sch B. This however will prbably not give you a full break down of the calculation. We would take a look at diagnostics in the Check return tab to see if there is anything showing that might help with what you are seeing. Also here are some helpful articles that may assist:

How to resolve ProConnect diagnostic Ref 37488 - Adjustment attributable to municipal bond interest

Entering an Original Issue Discount (Form 1099-OID) in ProConnect Tax

Entering Form 1099-INT interest income in the Individual module in ProConnect Tax

If after reviewing the articles above, you need further assistance please reach out to ProConnect Support. They would be able to assist you with this and you would be able to send the file in for review.

[Accountant-Man]

Me too.