Where do I deduct accrued interest paid on a tax-free muni bond?

[kidoncorner]

on my 1099-Int:
Box 8 Tax-Exempt Interest: $544
Box 13 Bond Premium on Tax-Exempt Bond: $64
Supplemental Info not reported to IRS: Accrued Interest Paid on Purchases $1229

[MonikaK1]

If you are reporting Interest income on an instrument like a bond that had accrued interest at the time you purchased, then yes, you would reduce your interest income by the accrued interest at your purchase date. Enter the full amount of the interest, and then enter the Accrued Interest paid as an adjustment to reduce it. 

When you see the screen "Do any of these uncommon situations apply?", check the box that says" I need to adjust the interest reported on my form". Read the Learn More link that appears, and enter the adjustment in the box provided.

See this thread for another discussion of this topic.

See here for more information from the IRS on this topic.

[John in Boston]

Dear MonikaK1,

I have the same question as kidoncorner. 

I notice that the text following the first checkbox located on the "Do any of these uncommon situations apply?" reads, "We need to adjust the taxable amount." kidoncorner's question was for tax-free munis.  Does your reply apply to those as well?

Thank you.

[DianeW777]

No, only if you have taxable interest in Box 1, Form 1099-INT..  If you are not reporting municipal bond interest on your federal return, which is nontaxable, then there is no adjustment to make.  However, you must track this manually so that when you redeem or sell the bond you have the correct and accurate purchase price to use against the selling price.  At that time it will be a reportable transaction as an investment sale.

Double check your state return requirements if the municipal bonds are not from your state. It's likely they would be taxed on your state return if they are not municipal bonds for your resident state. Your financial institution will normally provide a statement showing the percentage for your state, if it is for more than one municipality/state.

@John in Boston