Do I need to report tax exempt interest on Schedule B?

[Bruno]

What is the name of your state? CA

I have actually 2 question: 1) Do I need to report any tax exempt interest on Schedule B (mainly from state municipal bonds)? 2) How to properly report accrued interest? I read Publication 550, How to Report Interest Income, but I am not very clear:

Schedule B Line 1:
SUBTOTAL OF ALL INTEREST (Including "Accrued Interest") ... 1000
TOTAL "Accrued Interest" ... 100
Schedule B Line 2 ... 900

However, Line 2 instructs to Add the amounts on line 1. So should TOTAL "Accrued Interest" be in negative?

TOTAL "Accrued Interest" ... (100)

Should Total tax exempt interest (including accrued interest) go directly to 8b of Form 1040, with no reference on Schedule B?

Thanks for your advice!

 

[abezon]

You do not need to report tax exempt interest on Schedule B unless it was reported to you on a 1099-INT. Even then, you're only doing so because the IRS might screw up your return otherwise.

You enter an itemized list of all sources of interest, then a line called "Subtotal" & add everything up. Below that, but above line 2, you enter any "Tax exempt interest" and "Accrued interest" as <negative> amounts. Then you subtract the TEI & AI from the subtotal to get line 2.

 

[LdiJ]

Or, if you use some good software, it will handle the interest properly. Again, that assumes that you have received a 1099 INT.

 

[Bruno]

Reporting Tax Exempt Interest

I believe as of 2006, all exempt interest is reported to IRS. This was not the case before 2006. I compared Pub 550 for 2006 with older versions. In the older versions, it states You must complete Part I of Schedule B (Form 1040) if you file Form 1040 and any of the following apply ... 5) You received a Form 1099–INT for tax-exempt interest. However, in 2006 Pub 550, this item has been dropped since all 1099–INT forms now report tax-exempt interest (Box 8). Also, reporting interest in negative numbers looks odd to me. Instruction says Add the amounts on line 1 (technically, it should say combine?). There is no mentioning in 2006 Pub 550 that I can identify where it makes any reference to tax-exempt interest on Schedule B. I am more inclined to skip any reference to tax-exempt interest on Schedule B and report the total only on line 8b of Form 1040. This includes all accrued tax-exempt interest.

 

[tranquility]

I wouldn't put it on schedule B, but would report on the front of the 1040. The reason why software is important is because the amount is used in other calculations for limitations or AMT issues.

You can report it on Schedule B as Abezon mentions, I just don't do it. The IRS seems to match up the amount reported on the front of the return just fine.