FWIW, I think it *might* be a conscious decision on the part of Intuit to not transfer the Accrued Market Discount to state returns. I read in one place where a tax expert said Accrued Market Discount is not the same as interest paid by the government. This seems completely wrong to me, as Fidelity even reports it directly as box 3 interest on the 1099-INT in the case of zero coupon T-bills. I called my local tax office in Hawaii and spoke to an auditor who told me it was deductible, so I have no concerns. Bottom line, it seems like there's a lot of uncertainty around how to properly handle Accrued Market Discount.
In my situation, I had already e-filed both federal and state returns when I discovered the problem. This is my first year doing state income tax (HI) in over 15 years, having previously lived in a state (WA) without income tax. So, what I did was amend my return in TurboTax, removing the capital gains entries and adding the Accrued Market Discount amount as 1099-INT box 3 entries on the federal return. You'll notice in doing this that the federal amount owed/refund does not change, as it should be. I went on to amend the state return, which now pulled the US government interest in correctly. I'm having to file the amended state return by mail.
