You can solve this by going to the 1099INT for your brokerage and selecting "Bond Premium for treasury obligations" from the check boxes under the section "Adjustments to Interest". Enter your Accrued Market Discount" as a negative number on the line "Enter adjustment amount".
This will add the Accrued Market Discount as a positive number to your Schedule B and will treat the amount appropriately for your State return.
NOTE:
1. Make sure to enter zero on the worksheet titled "Capital Gains (Loss) Adjustments Worksheet" in the last section, in the entry "Accrued interest to Schedule B".
2. Make sure you do not check the box "Sale includes an accrued market discount". This adds the accrued market discount to State and Federal income.
