I have interest from US bonds on a schedule K-1 (1041) federal and K-1 (1041) state tax form. When I enter the interest income from my federal K1 form on my federal tax, TurboTax easy step has a line for "US Bonds (Nontaxable to States) Included in box 1." When I enter the amount there, it is automatically included on my TurboTax state form under "Modifications Decreasing Federal AGI" as income from obligations of the US Government. My state tax is lowered as a result of this entry.
My state K1 form indicates the same amount as a negative "fiduciary adjustment." TurboTax state has a box to check for "fiduciary adjustment (loss) as a beneficiary of an estate or trust," and then prompts for the amount. When I enter the amount there, TurboTax enters the same amount under the fiduciary adjustment of "Modifications Decreasing Federal AGI" and my state tax is lowered as the same interest is again deducted from my income.
What is the correct way to enter this US bond interest without it getting deducted from state income twice, but still demonstrating that the amounts from the K1 forms are accurately included in both my federal and state tax forms?
