How do I adjust a tax loss for a tax exempt fund held under 6 months?

user17701799152 — Wed, 04 Feb 2026 05:30:26 GMT

I sold a municipal bond ETF that accrues interest monthly (and did accrue tax-exempt interest) for a loss within 6 months of purchasing the shares.

In IRS Publication 550, it states under "Loss on mutual fund or REIT stock held 6 months or less" that:

If you received exempt-interest dividends on the stock, at least part of your loss is disallowed. You can deduct only the amount of loss that is more than the exempt-interest dividends. Report the loss as a short-term capital loss. On Form 8949, Part I, line 1, column (d), increase the sales price by the amount of exempt-interest dividends, but do not increase it to more than the cost or other basis shown in column (e).

I don't understand how to actually enter this adjustment into TurboTax.

I can see that I can literally edit the "Box 1d - Proceeds" value in the Easy Step mode, but the TurboTax instructions on that page insist "Your info should match your 1099‑B exactly. You can add any situations next."

On the situations screen, I don't see any relevant situations I can use.

Should I be trying to do this in Forms mode somehow and entering an adjustment code?

Or ignore the TurboTax instructions and just enter the adjusted Proceeds that don't match1099‑B?

Thanks.

Re: How do I adjust a tax loss for a tax exempt fund held under 6 months?

Mike9241 — Wed, 04 Feb 2026 06:22:59 GMT

Yes a conflict between the IRS Pub 550 and TurboTax instructions. I'll assume that the 1099-B you got does not already reflect the disallowed loss. The IRS publications, per at least 1 court decision, have no official standing. However, this situation was different. The PUB said X, but the code said Y. The taxpayers relied on the PUB. The court said in effect, "Too bad."

can't say which of these is best. Either increase the proceeds, or follow Form 8949 instructions, which probably have no more official standing than the PUB:

You have a nondeductible loss other than a loss indicated by code W(wash sale)
use code L (column (f)
Report the sale or exchange on Form 8949 and enter the amount of the nondeductible loss as a positive number in column (g).

topic How do I adjust a tax loss for a tax exempt fund held under 6 months? in Investors & landlords

How do I adjust a tax loss for a tax exempt fund held under 6 months?

Re: How do I adjust a tax loss for a tax exempt fund held under 6 months?