Get your taxes done using TurboTax

As you noted, municipal bond interest is tax-exempt, so the total interest isn't taxable. However, if some of the tax-exempt interest falls under the definition of accrued interest, it must be taken into account by subtracting accrued interest from the total tax-exempt interest to arrive at the amount of tax-exempt interest that is attributable to the purchaser.

From the Instructions for Schedule B:

Enter the total on line 2a of your Form 1040 or 1040-SR. However, if you acquired a tax-exempt bond at a premium, only report the net amount of tax-exempt interest on line 2a of your Form 1040 or 1040-SR (that is, the excess of the tax-exempt interest received during the year over the amortized bond premium for the year).

In TurboTax, if you indicated when entering the 1099-INT that you need to adjust the interest, you will see this follow-up screen:

See the highlighted section if your form contains more than one kind of interest. In that case, create a separate 1099-INT for each type so that the adjustment is applied to the appropriate type of interest.

If you received any tax-exempt interest (including any tax-exempt OID), such as from municipal bonds, each payer should send you a Form 1099-INT or a Form 1099-OID. In general, your tax-exempt stated interest should be shown in box 8 of Form 1099-INT or, for a tax-exempt OID bond, in box 2 of Form 1099-OID, and your tax-exempt OID should be shown in box 11 of Form 1099-OID. 

If the calculation of the accrued interest isn't clear from the documents you were provided, contact the payer.

See IRS Pub. 550 for more information.