For the accrued interest you paid at purchase, you would offset that against your 1099-INT with the coupon interest, as an adjustment. You should have coupon interest on 1099-INT Box 3 and enter the adjustment (as a positive number to reduce income) on the interview screens following the box input. It will show up on Schedule B as a negative "Accrued Interest" adjustment.
I don't think you need to do anything with cost basis, that is usually recorded without the accrued paid, and brokers usually take care of cases where cost basis adjustment needs to be recorded due to premium amortization, 1099-OID reporting etc.
Back to the AMD, as quick example - if you buy 10k par of bond @ 98 with 2 years left to maturity, it will accrue the $200 discount as AMD from the time you buy it until maturity (calculated by the broker). If you hold it to maturity, then you have a 'gain' (calculated as proceeds - cost) of $200, but underlying AMD is also $200. The 'gain' is adjusted to zero for Schedule D, and the $200 is reported on Schedule B as income.
If instead you sold it before maturity, the outcome depends where the market is relative to where you bought it and your AMD at the time of sale. Suppose you sold it when the accrued AMD to that date is $100 i.e. accreted cost price is 99, so half way. But you sold it in the market at 99.5 for whatever reason so you made $150; in this case you have $100 of AMD and $50 of gain. If the market happened to be at 98.5 you only make $50 but this is less than the $100 AMD, so the $50 is reported as income with no gain.
It's not the case that selling prior to maturity gives you cap gain and only holding to maturity gives you income, there is no such distinction in the tax code (see Pub 550 market discount bonds section linked above). It just so happens that at maturity you are guaranteed that the gain is same as AMD so it's all income. To generate a cap gain off a discount bond (any bond, including munis) you would need a large move down in rates / move up in market prices, early enough in your holding period such that your AMD hasn't accrued much relative to the change in market price you are able to realize.
Hope this helps.
