same way the premium does, it reduces net interest income reported on your Fed return (under a single 'accrued interest' negative adjustment on your Schedule B) and the corresponding interest adjustments on your state return
beware also if you have 1099-INT with multiple types of income in boxes 1/3/8 and need to make an accrued interest adjustment on any of them, you have to split the 1099-INT up, as you can't specify which box it belongs to, and can only apply one accrued interest adjustment - TT will pro-rata it across all the income on the 1099.
