I got a 1099INT from my broker with both Box 1 and Box 3 interest. There was accrued interest paid on my purchase of treasury bonds that earned the Box 3 interest. How do I attribute all the accrued interest with the Box 3 interest so that my deduction for US Treasury obligations comes through correctly to my state return?
I will give an example with round fictional numbers for illustration to illustrate the issue:
Box 1 Interest $3000 (75% of my interest earned) - This was on certificates of deposit
Box 3 Interest $1000 (25% of my interest earned) - This was on Treasury bonds
Accrued interest paid for purchase of US Treasuries: $400
My Federal Schedule B shows:
Line 1:
Acme Broker $4000.00
Subtotal $4000.00
Accrued Interest -$400
Line 2: $3600.00
Turbotax is automatically attributing $100 (one fourth) of the accrued interest to Box 3 and $300 (three fourths) of it to Box 1 in some sort of prorated math. It then concludes for my state return I have $1000 - $100 = $900 of interest on U.S. Treasury obligations. Reality for my state deduction should be $1000 - $400 = $600.
How do I get Turbotax to not overstate my state deduction for US Treasury interest?
Report the actual taxable amount. My advice would be to reduce the taxable interest by the accrued amount (paid at purchase of the bond) in Box 3. This will carry the appropriate figures to both the state and federal without entering your adjustment amount. You can keep the information documents with your tax file should the IRS or state request information later.
I found several older posts of people having similar issues and they were advised to split their 1099-INT forms. In my case, I would enter one 1099 form into Turbotax with my Box 1 interest, and a separate one for the same institution with my box 3 interest along with the accrued interest that goes along with it.
At this point, I am thinking that may be a better idea than just subtracting the accrued interest from the interest myself, as it will keep the accrued interest line on my schedule B along with interest amounts that can be matched to the various boxes on the 1099s.
These are the other links I was looking at:
https://ttlc.intuit.com/community/state-taxes/discussion/interest-income-exempt-in-nj/00/2230450
https://ttlc.intuit.com/community/taxes/discussion/accrued-interest-paid-when-purchase-bonds-is-not-reported-to-irs-by-our-financial-institute/00/1675141
https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/tax-exempt-bonds-more-than-one-state-with-accrued-interest/00/3011710