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Yes.  Having exact same issue, everything you said.  Except Notes vs. Bills.  My 1099B is from Schwab, but like yours it reports the Accrued Market Discount as a 1099-B adjustment and passes it to Schedule B.  So it gets reported correctly on Federal, but doesn't not get properly passed to the State for the subtraction.  With the caveat, not all states, allow it to be excluded from state taxable income, but many, including mine definitely do.

 

I've searched forums as well, without result.  I've also tried populated fictious 1099-INT's (putting ALL Treasury income in Line 3).  But that doesn't work for me, because as you described, the 1099-B still passes the Accrued Market Discount to Schedule B (resulting in a doubling for Federal).

 

So far, the only solution I can see is to override the subtraction on the state return.  Making sure it includes that Accrued Market Discount.  I'm trying to find out: 1)if this will preclude state e-filing, and 2) if there is a better alternative.  Thanks for posting, you perfectly described the same issue as I'm having.