Well, this is from PA. I had to ask the question several different ways, receiving several different answers to get this close, but they did try to answer it which isn't bad.
From PA
"For Pennsylvania personal income tax purposes, a premium paid on a bond is deemed to be an investment in the bond to obtain the higher bond interest rate. The amortization amount taken for federal income tax purposes must be added back on Line 3 of PA-40 Schedule A, Interest Income, while the Pennsylvania amortization amount is deducted on Line 8 of PA-40 Schedule A.
Market discount is the amount discounted from the face amount of a bond at purchase, meaning purchased at less than face amount. Interest that accrues on the bond is taxable. When the bond is sold/redeemed the taxable interest that has been reported each year becomes part of the cost of the bond. This creates a low to no gain on the transaction because of the increased cost basis at the time of redemption.
The amortizable bond premium is a tax term that refers to the excess price paid for a bond over and above its face value. Depending on the type of bond, the premium can be tax-deductible and amortized over the life of the bond on a pro-rata basis (reduces the interest income being reported)."
End of From PA
My question was only related to AMD on Government Treasury Notes. They talk about lines 3 and 8 on PA Schedule A. For AMD for Government Treasury Notes, TT converts that to interest and puts it on US Schedule B as interest. That in turn is transferred to Line 1 of PA Schedule A (Interest Income reported on your Federal Return). Line 3 of PA Schedule A is just "Other Additional Adjustments" to that interest, which should be 0 because it is already included on line 1 of PA Schedule A.
After this, PA Schedule A adds up all your interest lines, which is just Line 1 for me, they then offset it.
Line 7 of PA Schedule A pulls out the "Interest Income from direct obligations for the US Gov't", which is interest payments you get from the US Notes. Then there is Line 8, which they talk about in the response. That is where I put my AMD for the US Notes so it gets subtracted from interest income.
I am not 100% sure this is right, and I am not an expert, but based on all of the feedback, and the logic around one of the major reasons people buy US Notes (to avoid state taxes), this is the way I decided to go.
