Actually, there is not a deduction for the premium you paid for your tax-exempt bonds on your federal return. You are required to amortize the premium each year and this will reduce your basis (what you paid). So when the bond matures, your basis will be the face value of the bond. Generally, there will not be a loss.
For tax-exempt and taxable bonds, this adjustment happens automatically when you enter the amount from Box 13 and Box 11 in the 1099-INT section of TurboTax. The adjustment will reduce your amount of reportable tax-exempt interest on Form 1040, line 8b. For taxable bonds, the adjustment will reflect on Schedule B, Part 1.
If adjustments for bond premiums are not reflected on your 1099-INT, you can manually enter the bond premium adjustment in the 1099-INT section of TurboTax. This is also where you can report any accrued interest paid.
Follow these steps to make a manual adjustment for the bond premium you paid on your tax-exempt and taxable bonds:
- Select Federal Taxes
- Under Wages & Income select Interest on 1099-INT
- Enter your 1099-INT information, select Continue
- Select I need to adjust the taxable amount, select Continue
- Enter the state that pays your tax-exempt interest, select Continue
- Enter the amount of your premium adjustment (use a negative number if you need to add to the interest reported)
- Select the Reason for Adjustment
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