Since you are filing the KF and it holds the bond money, you do not want to pay double on the income so you can mark zero for line 1 of M1M asking for the line 2a from federal OR go the other way around and mark the KF as zero. You don't want to file with an override and you don't want to pay twice on the same income. Whichever way you can zero out one of them is fine.
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