I have the same issue except the opposite scenario. My accrued interest is part of Box 1 because it's from Agency Bonds (Federal Farm Credit Banks) that are exempt from State and Local tax. If I don't enter the accrued interest, TT properly carries the entire Box 3 amount to my State taxes (MD) as a deduction. However, if I enter the accrued interest, TT puts a lower, prorated amount of Box 3 into my State taxes. This is clearly not correct because all of Box 3 should flow to the State since my accrued interest is part of Box 1. This might not be "bug" per se, but TT should ask the user where the accrued interest comes from instead of just prorating it, so it knows how to properly handle the deduction for State taxes.
I think that overriding this number in the State form is probably a better solution than creating separate 1099-INT entries since the TT number is actually wrong. Also, having two 1099-INT entries won't match exactly what the IRS gets.
Rich
