@PMS as @Mike9241 says you may need to split the 1099 entry into TT as there is a limitation with TT applying accrued interest, you can only apply one adjustment of that type to a single 1099-INT. If you have multiple income types (Box 1,3,8) on one 1099-INT then it doesn't know how to apply the accrued interest and will pro-rata it over everything which may reduce the accrued being applied to the Box 3 interest and affect your CA subtraction. The only way to resolve is it to split up the 1099-INT by box (along with their respective premium amounts in Box 11-13) and enter the accrued interest adjustment that applies for each.
That said, in this other thread someone else was struggling with the same issue for CA state tax even after splitting the 1099.
https://ttlc.intuit.com/community/taxes/discussion/tax-exempt-from-california-state-from-u-s-treasur...
If 1099s are doing weird things in TT it's also worth trying to re-input and delete the old one, especially if it was imported.
You are correct btw in subtracting the accrued interest you paid. Some brokers do a better job of tracking than others and may provide additional info in the 1099 statement for accrued interest paid during the tax year, but they are not obliged to track this against the coupons you receive in the same way they calculate and report premium/discount. Unfortunately goes with the territory of holding individual bonds. Also be aware if you buy a bond after the last coupon payment of the year then you need to 'carry over' the accrued interest to the tax year you receive your first coupon payment.
Publication 550 from the IRS is a good official reference for this, see "Accrued Interest On Bonds"
https://www.irs.gov/pub/irs-pdf/p550.pdf
Accrued interest on bonds.
If you received a Form 1099-INT that reflects accrued interest paid on a bond you bought between interest payment dates, include the full amount shown as interest on the Form 1099-INT on Schedule B (Form 1040), Part I, line 1. Then, below a subtotal of all interest income listed, enter “Accrued Interest” and the amount of accrued interest you paid to the seller. That amount is taxable to the seller, not you. Subtract that amount from the interest income subtotal.
Not a CPA/Expert - just my 2 cents dealing with this issue in TT
