You will pay tax to your state when the bond matures if you haven't done that each year.  Review the information below to determine if you elected to include the interest in your income each year.  Your basis remains the original discounted price if you do not report the market discount each year and at redemption the gain is reported as taxable gain (a redemption is a sale for tax purposes).

Although qualified stated interest received and OID accrued on a tax-exempt debt instrument are tax-exempt and not includible in income, market discount on a tax-exempt debt instrument isn’t tax-exempt interest and therefore is includible in taxable income.

8. When is market discount includible in income?

Unless you have made an election to include market discount in income as it accrues, you must treat any gain when you dispose of a debt instrument with market discount as interest income, up to the amount of the accrued market discount. In addition, you must treat any partial principal payment on a debt instrument with market discount as interest income, up to the amount of the accrued market discount. In general, market discount accrues over the term of a debt instrument on a ratable basis or, if you elect, on a constant yield basis.

For more information about market discount.

• See IRS Publication 550 and IRS Publication 1212.

clarification.

Can I start declaring market discount as interest on my tax exempt state obligation now and receive credit for it or is it too late?  It is midway between its issuance date and maturity date in 2017. 

Sorry, I meant midway between it issuance date and 2027. Brain fog here.

Another complication is that on the same tax exempt bond, I filled in the OID Discount of $325 as additional income on my state tax return 2018.  But nothing on market discount accretion of 33.00.

The following year Tax 2019, I made no additions.

So is there any way of getting credit for the 325 I wrote in as addition income in 2018?

So this Tax year 2020, I don't know how to straighten it out. I am inclined now to let it go until the bond matures, but even so I would like to get credit for the OID $325 I paid as additional income in my tax yr 2018 state return.