DawnC said: "Accrued market discount from a US Treasury obligation is not deductible on your state return because the effective paid interest there was coming from a private party, not the US treasury. If you buy the bond from the government, you can subtract the interest. If you buy the bond from a 3rd party, the interest is not deductible. "
When I buy a bond at a discount, the discount is the market's way of letting me the buyer get the current yield on bonds of similar time to maturity. It's an interesting idea to think of yield to maturity on the secondary bond market as being the sum of billions of compensatory gifts between 3rd parties. The effective paid interest is coming from an accounting method, not the 3rd party. IRS Pub 550 says to treat AMD as interest, and TT does a good job of that on the Federal return. TT doesn't extend the treatment to the state return, maybe because many of the states are silent on AMD specifically, leaving ambiguity that made TT hesitant to implement the state treatment. Don't forget that AMD, if you accrue as you go, doesn't appear in your bank account until maturity or sale, so it makes taxation at the state level even more vexing. With the exception of NC, in all the threads on this topic, nobody AFAIK has provided a direct source to any state specifically denying tax-free treatment on Treasury accrued market discount.
At any rate, as stated in the Original Post, this thread is for people who intend to deduct AMD from their state income taxes and want ideas on how to get TT to do it. "How to", not "whether to".
