Foreign Accounts or Assets

  • If, looking at a 1099-INT or similar form, the taxpayer appears to have foreign accounts or foreign financial assets:
    • Discuss with the taxpayer whether the accounts are in fact outside the U.S. (look at payer information.)
    • If there were one or more foreign accounts, ask the taxpayer what was the highest (approximate) value during the year for all accounts combined.
      • If the total account value was more than $10,000 at any time during the year, that requires FBAR filing of a FinCen 114 form, which is out-of-scope, making the return out-of-scope. 
      • Otherwise, go to the Did you have interest from a bank in a foreign country? page [Income > Form 1099-INT / 1099-DIV > ...] and check only the first box.
    • If there were one or more foreign accounts, ask whether the taxpayer received a distribution from, or was the grantor of, or transferor to, a foreign trust. If yes:
        • Form 3520 itself is out-of-scope – do not assist the taxpayer in completing this form.

Interest Income on Form 1099-INT 

  • Note: Mutual funds report their distributions as dividends, on Form 1099-DIV, even if they originate from interest earned on a fund’s portfolio.

Note: Form 1099-INT includes a “FATCA filing requirement” checkbox to the left of box 12. If there is an entry in that box, then the return is out-of-scope.


  • Go to the Interest Income page [Income > Form 1099-INT / 1099-DIV > Interest or Dividend Income > Interest Income, Form 1099-INT (including interest income < 1,500)]. Each 1099-INT is entered separately.
    • Note: Institutions that have paid less than $10 in interest during the tax year are not required to issue a 1099-INT. If the taxpayer reports receiving interest of between $0.50 and $9.99, use the Interest Income page to record this income, even though there is no 1099-INT.
      • Credit unions refer to payouts on depositor accounts as “dividends,” because such payments are not legally required, even when rates are publicized in advance. However, for tax purposes, these “dividends” should be treated as interest. If $10 or more, such payments will be reported on a Form 1099-INT.
  • Enter information from a Form 1099-INT as described on pages D-14 through D-16 of Pub 4012. Additional notes:
    • If the taxpayer has children, make sure the SSN on the 1099-INT is not that of a child. 
    • The Payer’s Name is required but can be abbreviated.
    • CA process note: Don’t enter the Payer’s TIN or Payer’s Address.  Neither the IRS nor CA use them.
    • CA process note: For MFJ returns, because CA is a community property state, you can leave the default of “Taxpayer” on the line “Taxpayer, Spouse, or Joint?”
    • The amount entered in box 2, “Early Withdrawal Penalty”, is carried to Schedule 1 Line 18.
    • Box 3, “Interest on U.S. Savings Bonds and Treasury obligations":   Part of the amount entered in Box 3 is potentially excludable from federal taxation, if the taxpayer had qualified educational expenses: see Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989. However, Form 8815 is out-of-scope for Tax-Aide. The return is in-scope if the taxpayer is willing to not claim any exclusion that might be calculated using Form 8815; otherwise, the taxpayer should use a paid tax preparer or tax software to file a return that includes Form 8815. 
      • A taxpayer who inherits EE or I savings bonds is treated as the original purchaser for purposes of taxang interest from the bonds. (The executor of the estate could have declared as income the interest up to the date of death of the original purchaser, with the estate paying taxes. This is unlikely.) 
      • CA legal note: States don’t tax interest income from U.S. savings bonds, Treasury bonds and other direct obligations backed by the U.S. government, including federal Land Banks and Federal Home Loan Banks. This does not include interest from Fannie Mae or Freddie Mac. Any amount in box 3 of the Form 1099-INT should also be entered in the box labeled “Amount of interest on U.S. Savings Bonds and Treasury Obligations that you want subtracted from your state return.”
    • Box 5, “Investment Expenses”, was part of the category of deductions that were subject to a 2%-of-AGI reduction; that category was eliminated from the federal Schedule A for tax years 2018 through 2025. 
      • Note for CA state returns: California conforms to federal Schedule A deductions as of 2015, so this expense is allowable as a CA itemized deduction, subject to a 2%-of-AGI reduction.
        • TaxSlayer handles this expense automatically; the amount entered in Box 5 flows to CA Schedule CA Part II line 21. No entry is needed in Schedule A.
    • Box 6, “Foreign Tax Withheld”: An amount entered here will go to Schedule 3 Line 1, Foreign Tax Credit.
      • If foreign taxes paid total more than $300 ($600 for a joint return), there are potential complications. See page 90.
    • Box 8, “Tax Exempt Interest”. TaxSlayer starts with the assumption that all federally tax-exempt interest (the amount entered in box 8) is also exempt from state tax. If that is not true, then the amount that is taxable by a state must be entered in TaxSlayer – click “ADD INTEREST ITEMS.”
      • Generally the payer will report the percentage of the exempt income that is from various states; those percentages are used to calculate how much of the exempt interest income is taxable by a state. 
      • Note for CA state returns: Interest and dividends from state and municipal bonds of states other than CA are taxable on the CA return. But interest and dividends from U.S. territories such as Puerto Rico, Guam, and the U.S. Virgin Islands is treated the same as tax-exempt obligations issued by California.
        • The general rule is that if 50% or more of the assets held by a fund are CA tax-exempt, then only the tax-exempt income that is not from those obligations is subject to CA tax; if less than 50% is from CA-exempt obligations, then all of the interest that is reported in box 8 is taxable by CA.
    • Box 9: The private activity bond (PAB) amount entered here flows to Form 6251.
      • Large amounts of PAB income can trigger the Alternative Minimum Tax (AMT), which would make the return out-of-scope, but this is quite unlikely. The total of PAB income, plus various other (unusual, and mostly out-of-scope) items, would have to exceed the AMT exemption amount. 
        • The amount exempt from regular tax varies by filing status; for 2022, the amount for MFJ is $126,500; for single taxpayers and HoH filers, it is $81,300; and for MFS filers it is $63,250 (half of the MFJ amount.)
    • Boxes 10 through 13 are (generally) in-scope for Tax-Aide.
      • There are three out-of-scope situations: (1) the amount in box 11 is greater than the amount in box 1; (2) the amount in box 12 is greater than the amount in box 3, and (3) the amount in box 13 is greater than the amount in box 8.
      • If there is an amount in box 13, enter that amount, and then adjust the amount entered in box 8 – the amount to be entered in TaxSlayer is the amount in box 8 on the paper 1099-INT, minus the amount in box 13 on the paper 1099-INT.
      • CA policy: Some CA split-states and districts may have made amounts in these boxes out-of-scope. If a taxpayer with a 1099-INT has an entry in one of these boxes, check with your LC.

Original Issue Discount (OID) Interest

  • On Form 1099-OID, any amounts in box 6 (Acquisition premium), as well as a checkmark in FATCA filing requirement box (to the left of box 9), are out-of-scope, and make the entire return out-of-scope. Similarly a return is out-of-scope if any adjustment is needed based on Pub 1212, Guide to Original Issue Discount (OID) Instruments, or if a Form 1099-OID should have been received by the taxpayer but was not. 
    • CA policy: Some CA split-states and districts may have made box 5 (Market discount) and box 10 (Bond premium) out-of-scope. If a taxpayer with a 1099-OID has an entry in either box, check with your LC. 
  • OID interest is entered on its own TaxSlayer page. Go to the Form 1099-OID page [Income > Form 1099-INT / 1099-DIV > Interest or Dividend Income > Original Issue Discount, Form 1099-OID]. 
    • CA process note: Don’t enter the Payer’s TIN or Payer’s Address.  Neither the IRS nor CA use them.
    • Box 8: An amount here is treated the same way as an amount in box 3 of Form 1099-INT – see the previous section.
      • Note: If box 8 is negative, this is a deflation adjustment; both the form and the return are out-of-scope.
    • Note for CA state returns: Box 9, Investment Expenses, automatically flows to CA Schedule CA, as discussed in the section above (see box 5 there.) 
    • Box 11: An amount here is treated the same way as an amount in box 8 of a Form 1099-INT – see the previous section.

HSA Interest 

  • CA does not recognize HSA trusts. Interest income earned in such a trust is taxable for CA – see the section Health Savings Accounts in CA, page 113.

Seller-Financed Mortgages (Schedule B, Line 1a)

  • Seller-financed mortgages occur when the taxpayer sells a property and helps the buyer finance the purchase by providing a loan for some or all of the sale price. The payments that the taxpayer (seller) receives will, in most cases, consist of both interest and principal. Only interest income should be reported in TaxSlayer.
    • Detailed information about such situations can be found in Pub 537, Installment Sales.
    • Note: If the person making the loan (for example, a parent) never owned the property being purchased (in this example, by a son or daughter), then that loan is not a seller-financed mortgage, it’s just a regular loan, with part of payments being interest and part being to reduce the principal amount of the loan. Only the interest part is reportable, in the same way that other forms of interest are reported, even if there is no Form 1099-INT. (See above for how to report such interest in TaxSlayer.) 
  • In the year that the sale of the property occurred, if the taxpayer had a gain, then the taxpayer (seller) had two choices: (1) report capital gains over the period of the loan, or (2) report all capital gains in the year of the sale, by including the entire sales price when calculating the capital gain or loss on the sale. If the seller chose the first of these – reporting capital gains over a period of time - then the return is out-of-scope.
  • If the return is in-scope, go to Schedule B Seller Financed Interest [Income > Form 1099-INT / 1099-DIV > Interest and Dividend Income >Seller Financed Interest Income].
    • Enter the requested information.
      • If the Payer’s (borrower’s) SSN is unknown, the return must be paper-filed; create a note (page 8) saying that. 
    • Click “Continue.”

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