I answered all the questions correctly and entered the interest in Box 3 from 1099-INT. I did not say the interest is not taxable. I did not use the interest to pay for higher education. But TT deducted the amount from my state income. I deleted the entries and re-entered. It did not make a difference. Why would TT deduct interest on US Savings Bonds when I did not say that the interest is not taxable?
Thanks for responding. I thought the interest is exempt only if it is used for qualified higher education expenses. I tried selecting interest is exempt from state taxes and a small selection screen came up asking me to select the state, There are only 6 or 7 states and KS is not one of them. This from IRS website, "If you cashed series EE or series I U.S. savings bonds that were issued after 1989 and you paid qualified higher education expenses during the year, you may be able to exclude from income part or all the interest on those bonds.
I will check with KS department of revenue.
under Federal law US savings bonds are state income tax exempt. in this regard TT does know the tax laws
the exclusion in the federal instructions is for federal purposes if the provisions in IRC code Section 135 are met.
if the tests are met form 8815 needs to be filed. the excludable portion goes to schedule B line 3