Adjustments to Interest Income

[davidmloch]

I had an early withdrawal penalty from an interest-bearing Certificate of Deposit (CD). Can I deduct the penalty from my interest income? If so, what "reason for adjustment" should I use?

[JamesG1 · Accepted solution]

The entry will deduct the penalty from income on line 10 of the Federal 1040 tax return.  With the following method, no reason is required.

Follow these steps:

• Down the left side of the screen, click Federal.
• At the top of the screen, click Wages & Income.
• Click Show more to the right of Investments and Savings.
• Click Start / Revisit to the right of Interest on 1099-Int.
• Click Add investments.
• At the screen Get ready to be impressed, click Continue.
• At the screen Let’s import your tax info, click Enter a different way.
• At the screen OK, let’s start…. select Interest.  Click Continue.
• At the screen How do you want …. Select Type it in myself.
• At the screen Let’s get the info from your 1099-INT, click on My form has info in other boxes.
• Enter the penalty in Box 2 Early withdrawal penalty.

The entry will be found on line 18 Part II of Schedule 1 Additional Income and Adjustments to Income.