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

[Sandra1]

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?

[poolcleaner · Accepted solution]

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.

[Accountant-Man]

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?

[Sandra1]

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?

[poolcleaner]

The way you are describing the K-1 there is $736 of taxable interest and $720 of tax exempt interest.

[Accountant-Man]

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.