Agency Bond Interest - How do I get Turbotax to reflect this as exempt on State (RI) return

[TaxFiler17]

How do I get Turbotax to reflect on RI Schedule M that the agency bond interest is not taxed by the state?

My 1099-INT box lists the interest from Agency Bonds (TVA, Federal Home Loan Bank, Federal Farm Credit Bank) in Box 1 and interest from US Treasuries in Box 3.

A prior post suggested entering by hand the interest from Box 1 as if it was in box 3 on the Federal return.  Will this create a problem for the Federal return?

RI Schedule M does not seem to have another category to exempt the Agency Bond Interest, and line 1a cannot be changed in Turbotax without an override.

Thank you.

[baldietax]

seen/responded on similar threads it seems some brokers report this in Box 1, others (e.g. Vanguard) in Box 3.

most state programs have some ability to input some sort of miscellaneous / additional subtraction with an explanation.  if there is no way to make this subtraction on RI state then probably your only option is to change the 1099 to remove it from Box 1 and put it in Box 3 or input a separate 1099-INT for it.  Not a CPA/Expert, no idea if IRS implication but I would imagine Box 1 vs. 3 reporting errors happen and it doesn't affect Fed taxes, and there is clear justification for it.

Beware also if you have accrued interest adjustment for it then it needs to be a separate 1099 as TT doesn't know which box to apply that adjustment against if you have Box 1/3/8 combined on the same 1099-INT.

[TaxFiler17]

Thank you for your response.  Would you mind clarifying something?  When you say, "change the 1099 to remove it from Box 1 and put it in Box 3", do you mean ask the brokerage firm that produced the 1099 to change it?  or do you mean enter the data into Turbotax so that the interest is moved from box 1 to box 3? And when you say, "input a separate 1099-INT for it.", does that mean enter the amounts in Turbotax so that one 1099-INT entry has nothing in box 1 and the US treasuries in box 3, and a second 1099 entry in Turbotax has nothing in box 1 and US Agency bond interest in box 3?  

Also, I am concerned that the uploaded 1099 will differ from the Turbotax entires and the tax forms that get produced.  Thank you.

[baldietax]

Hi no I don't think you'll get anywhere with the brokerage firm changing the 1099, I am referring to changing how the 1099 is input into TT and reported on your return (see below), to move the agency interest from Box 1 to Box 3 in TT.

And re "input a separate 1099-INT for it" I just mean a 1099 which has nothing in Box 1 and the agency interest in Box 3.  If you already have Treasuries in Box 3 that can go together.  But you only really need to do this if you have accrued interest adjustment, it's not needed to resolve the issue you are having.  In general, splitting up 1099s in TT is fine it doesn't have to match how the broker presents it consolidated on one form.

As for moving things from Box 1 to Box 3, yes it will differ from the 1099, but it won't affect your Fed taxes.

If you look at a PDF of your return needed for filing which is the end goal - none of this 1099 box detail is sent to the IRS when you file, all this data entry into TT is just mechanics to generate and support your final return - everything from Box 1 and Box 3 gets consolidated on Schedule B, only payer name and total interest amount is in your return (with premium or accrued interest adjustments consolidated on a separate line).  Box 8 is reported separately as tax exempt interest.

Instructions for Schedule B Line 1 - "Report on line 1 all of your taxable interest. Taxable interest generally should be shown on your Forms 1099-INT, Forms 1099-OID, or substitute statements... List each payer’s name and the amount. Don't report on line 1 any tax-exempt interest."

https://www.irs.gov/pub/irs-pdf/i1040sb.pdf

[TaxFiler17]

Thank you for your detailed and thoughtful response.  It was very helpful!