Depending on the types of bonds involved, the Federal amounts may be different from the California amounts.
Federal law requires the interest earned on federal bonds (U.S. obligations) to be included in gross income. California does not tax this interest income. The following are not considered U.S. obligations for California purposes: Federal National Mortgage Association (Fannie Mae); Government National Mortgage Association (Ginnie Mae); or Federal Home Loan Mortgage Corporation (Freddie Mac).
California taxes the interest from non-California state and local bonds.
Regarding bond premium, you are required to amortize the bond 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.
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.
Please see the explanation and instructions in this thread for more information.
Please also see IRS Publication 550 for more information.
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