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Investment expenses, tax-exempt int, Turbo tax

I had $24K of interest income of which $22K was tax exempt on one of y

1099-Int forms.. $332 is recorded as investment expense. I know that expenses incurred in production of tax exempt interest is not deductible. Turbo Tax doesn't seem to have any kind of proration guidance for this situation. I'd like to keep the 1099-int page exactly as sent to me, but could manually override the Schedule A summary value for all my investment expenses, subtracting the amount I calculate by prorating.

I realize the amount that I would be able to deduct by prorating in this instance is probably what most accountants would consider not worth bothering with... about $30, give or take.... but since Turbo Tax is pulling in the deduction directly from the 1099Int, the Schedule A deduction will be quite overstated if I don't do something. I'd be interested if my approach to this is correct in case I encounter it in the future or if I have misunderstood something fundamental. It seems more than a little odd that Turbo Tax doesn't address this issue directly.

Thanks for your feedback.

Reply to
jo
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In this case I would call the company and ask them to allocate between deductible and non-deductible, and if they don' t bother then pro-rate it yourself: 2/24*332 is the deductible portion.

But investment expenses are subject to the 2% of AGI rule -- only the amount above 2% of your AGI is deductible -- so this deduction might be useless to you anyway, even at the full $332. Also, the deduction is not allowed under AMT.

Reply to
removeps-groups

I had a similar situation with H&R Block's tax program; specifically, it was dividing accrued interest paid on the purchase of bonds proportionately between taxable bonds and munis.

What I did to get around that, and you may need to do the same thing, is to enter the one 1099 as two, entering just the taxable interest reported on the 1099 along with adjustments (adjusted bond premium and accrued interest paid), and a separate 1099 entry with just the tax- free interest and adjustments.

In fact, I also discovered the H&R Block doesn't allow both adjusted bond premium and accrued interest on the same 1099, so it's possible I end up entering one 1099 as four separate ones (i.e., (1) some subset of taxable interest - ADP, (2) the rest of the taxable interest - accrued, (3/4) ditto for munis).

Reply to
Stan K

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