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Adjustments of Interest Income

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📊 Step-by-Step Guide

Step 1: Make the Federal adjustment (Schedule B)

If you have an adjustment for the Federal return, use the Schedule B interest columns.

• On Schedule B, line 1b, link (F9) to the New Interest Statement: Schedule B Line 1b Interest Income.
• Find the column named NAEOB. Mark:
• N = Nominee
• A = Accrued
• E = Tax-Exempt
• O = OID Adjustment
• B = Amortized Bond Premium
• Use the NAEOB amount column to enter the related amount (nominee/accrued/exempt/OID/amortized bond).
• See the F-1 help for Schedule B and the statement for more information. If you’re unfamiliar with these adjustments, consult a tax reference such as IRS Publication 17.

Step 2: Make the state adjustment (State adjust column)

Use this when your state taxes interest differently than the Federal government.

• Go to the State adjust column on the Interest Worksheet.
• Enter either a + or - to show whether the interest should be added or subtracted from the state return.
• Then enter the amount taxed differently from Federal.
• Some states may use this column differently—check the F1 help on state forms.

Example: Interest is tax-exempt for Federal purposes, but taxable for your state.

• Go to the NAEOB column and enter E, then enter the tax-exempt amount.
• Go to the State Adjust column and enter a + and the amount of the interest that is taxable to your state.
• The income will be shown as tax-exempt on the Federal return, and taxable on the state return.

Tags: federal,form