accrued US Treasuries discount handling on IL state tax

[hmehta2003]

I see TurboTax has added US Treasuries Accrued Market Discount on Schedule B part 1 Interest for Federal tax. However, it is not showing on IL state Income tax return as subtraction.  How do I get this added on my state tax to get as exempt from income?

[KathrynG3]

No, your US Treasuries Accrued Market Discount would not be a subtraction for Illinois. 

Please see 2019 Illinois IL-1040 Schedule M Additions and Subtractions Instructions page 3 quoted below:

Line 22 — U.S. Treasury bonds, bills, notes, savings bonds, and U.S. agency interest

Enter the income included in your Form IL-1040, Line 1, you received from U.S. Treasury bonds, bills, notes, savings bonds, U.S. agency interest, and other similar obligations from your

• federal Form 1040 or 1040-SR, or
• mutual fund statement plus

any income listed in Publication 101, Income Exempt from Tax, under

• “What if I have income from obligations of the United States Government?”
• “What federally-taxable income is exempt from Illinois Income Tax by other federal statutes?”
• “What if I have distributions from money market trusts (mutual funds)?”

Mutual fund distributions

Include the entire amount of federally taxed distributions received from mutual funds investing exclusively in U.S. government obligations. If the mutual fund invests in U.S. government obligations and non-exempt obligations, your deduction is the distribution received from the mutual fund attributable to the U.S. government obligations, as determined by the mutual fund. If the mutual fund does not provide this percentage amount, multiply the total distribution by a fraction.

The numerator is the amount invested by the fund in exempt U.S. government obligations, and the denominator is the fund’s total investment.

• This subtraction is the amount net of any related bond premium amortization.
• Savings bond interest that is not included in your federal adjusted gross income is not an allowable subtraction.
• Do not include your distributive share of a subtraction for U.S. government obligations from a partnership, an S corporation, a trust, or an estate on this line. Your distributive share of subtractions should be included on Line 14 of this schedule.

[rinkrat7207]

I do not understand your reply.    Line 22 is for subtractions from income yet your response starts with "your US treasuries accrued market discount would not be a subtraction for Illinois".  

[scroogester]

How come TT will not allow me to make any entry on line 22?

  I have calculated my distributive share of US government obligations from the percentages provided by my mutual funds, but TT will not allow me to enter this data on line 22.

[Mervstover]

You are wrong. US Savings Bond interest is deductible in Illinois and has been. Every year I think you are competent and will fix it but you do not. I always have to do the IL form without TurboTax or apply for a refund with a tax change form. No one in IL should use TurboTax.

[AmyC]

You are correct that US savings bond interest is not taxable, in any state. That is why, when you enter the interest in the federal section, you put it in box 3 for US savings bonds so the program will know it does not go on the state return. Are you entering the 1099-int amount in box 3 in the program and still having an issue?

@Mervstover

[Mervstover]

Thank you for the correct answer. I had not been using box 3. The form from treasury does not report it in box 3 but does state box 3 in wordage later. I have two questions. Why does TurboTax state that using other interest form is unusual and why does the following page say to click this if your state does not tax interest and then only lists a small number of states?

[lfoss]

Excuse me it DOES go on the IL 1040 as a SUBTRACTION on Sch M.  It MUST be subtracted from the federal net taxable income which is the starting point of the IL1040.   Unfortunately it does not work correctly in 2021 either.  I have entered the amount in box 3 and still nothing gets printed on the Sch M.  TT FIX YOUR SOFTWARE!!! 

[DownTownDru]

I'm having a similar issue... I purchased a US Treasury Note in the secondary market (at a discount) which matured in 2022.  The Accrued Market Discount for this Note is appearing on my Federal Schedule B, but is not flowing through to my Illinois Schedule M, line 22 for US Treasury Interest.

Do I need to adjust this manually somewhere in TT to capture the US Treasury tax exemption for Illinois on the Accrued Market Discount?  This Note was originally issued at a discount, although I haven't yet received a 1099-OID.

[BrittanyS]

The US Treasury Note Interest should be listed as a subtraction on your Illinois Schedule M.  You should not have to adjust the subtraction in TurboTax manually.  As AmyC stated, verify that you have entered the interest in Box 3 for US savings bonds.  To check this in TurboTax, follow these steps:

1. Click Wage & Income
2. Click Revisit on 1099-Int
3. Click Type it myself
4. Enter interest on US Savings bonds and Treas. obligations in box 3

@DownTownDru 

[EEDacho]

I entered $107.50 of treasury note income in 1099-INT Box 3, but the corresponding entry on MI Schedule 1 Line 10 is reduced to $82. Why is the interest amount reduced?

NOTE: I am in the 24% tax bracket...is the interest amount reduced for this reason?

[JulieS]

No, the reduction in line 10 entry is due to a related expense, not to your tax rate. 

Do you have an entry for bond premium in box 12 of your 1099-INT? If yes, the line 10 amount will reduced by the amount of the bond premium. 

[EEDacho]

Thanks for your response, however, Box 12 is "0" (no bond premium on treasury obligations).

[JulieS]

Do you have any adjustments related to your bond income? 

[EEDacho]

FYI, I bought the Treasury Bond at a discount (face value = $10K). I paid $9995.70 for the bond plus $50.54 accrued interest.