Sorry, but this is wrong. Accrued market discount is excludable from Michigan income. See Michigan Administrative Bulletin 2020-22. The fact that this discount is paid to a 3rd party vs. US Treasury is irrevelant under in Michigan tax law. Especially take note of this text from that bulletin: "Net losses on the sale or exchange of obligations of the United States government are added back to an individual’s AGI or a fiduciary’s FTI and gains are subtracted". Those losses and gains on SALE would NEVER be paid to US Treasury, only to the other party to the transaction. If gains are specifically excluded from Michigan income, AMD would follow. See also the section titled "Preemption of state tax under federal law"
Also, one might wonder, if accrued market discount is indeed not deductible when "paid to a 3rd party", why TurboTax allows exclusion from Michigan income of those dividends related to US Treasury instruments. These dividends are, for the most part, originating too from 3rd party transactions by the investing funds. Conceptually this is very similar.
Finally, tiring of all this discussion, spoke to a Michigan CPA in tax practice who also supported the subtraction. So......
Bottom line, I presume TurboTax will never fix this. I will continue to override the Michigan return to get the correct exclusion.
