NJ treasury market discount is not tax exempted by TT

[ma6878]

Hi, I am using TT online premier version. There are 2 issues I am noticing in my NJ interest calculations:

1. When I select that some of the interest income is not taxable in NJ in the federal form, TT is treating all interest income in that 1099-INT as not taxable for NJ.

2. The treasury bond market discount is treated as taxable for NJ. From all my reading it appears that this should be treated as interest income and therefore tax exempt for NJ. 

How can I adjust these two for NJ return. Can I update (or override) the NJ worksheets? Or is there a workaround - only for the NJ return?

[VolvoGirl]

How are you entering the interest on the federal side?  To not be taxed in state you need to enter it in box 3 not box 1.  You have to check the little box under box 1 that says my form has more boxes for it to open up.  Then Turbo Tax automatically subtracts it from the AGI on the state tax return.   If you are entering it from box 3 then also select some interest is not taxable in the state you will be doubling it.  

[ma6878]

@VolvoGirl - Your reply addresses my point #1. But the point #2 in my post is still an issue. The market discount from treasuries is from the 1099-B and so there is no way to indicate tax exempt in the federal screens. They are taxable at federal level but not at NJ because they are treated as treasry bond interest. How can I exclude those in the NJ return?

One workaround I have is I can offset market discount amount in any one of the 1099-INT I have in the federal flow by putting that amount in box 3 and subtracting it from box 1. This should not impact the federal taxes but will exclude the market discount from NJ return. Not sure if that would cause problems though with the IRS.

[ma6878]

tagging @rjs since this is an NJ specific question.

Does anyone know if there is a way to override the NJ interest worksheet in the online premier version.

Thank you!

[rjs]

I don't see any way to handle the market discount correctly for New Jersey in the TurboTax interview. That means it's one of the many things that can only be entered in forms mode. Since there is no forms mode in TurboTax Online, it requires using the CD/Download Desktop TurboTax software rather than TurboTax Online.

In the desktop software you just put an X in the Tax-Exempt box for the market discount amount on the New Jersey Interest and Dividend Income Worksheet, and that takes care of it.

I'm not sure that your idea of fudging a 1099-INT would work at all, or produce the correct results. If it does work, it might not cause a problem with the IRS if you do not have Schedule B in your tax return. But if you do have Schedule B there would be an obvious mismatch between the 1099-INT and what is reported on Schedule B. In that case I expect that you would get a notice from the IRS saying that you underreported interest income.

Be careful with the word "override." In TurboTax an override means forcing a change of a result that TurboTax calculated. An override can cause the automatic calculations to break in unexpected ways, even in places that you think are not related to the override. An override cancels the accuracy guarantee and also prevents e-filing. Overrides must be avoided except in very unusual circumstances. What you want to do, putting an X in a box on a worksheet, is not an override. It's just an entry on a form.

[ma6878]

Thanks @rjs for your detailed reply. Yeah the X in forms mode would be very easy. However, I have already paid for turbotax online before I realized this problem (when reviewing the print out of the return that TT generated). So desktop version is not an option.

[rjs]

You could try calling customer support and see if they will switch you to desktop without paying double.

[Pip_12_mn]

I had a similar problem trying to exclude US Debt from my part year MA return. TT Online was incapable of doing it and I was steered to the desktop version. I ended up changing to other tax software that was free for federal and $9.95 for the state which worked perfectly.

Turbo Tax's refund policy is overly strict when something goes wrong with the online version, you have to switch to desktop version first and show it still does not work. If the product you buy is defective for its stated purpose you should be able to get a refund but evidently TT does not agree.

[tax911]

I used the download/CD version.  How can I find the New Jersey Interest and Dividend Income Worksheet?

[tax911]

I found the worksheet but the interest income is already calculated and includes the AMD.  There is no "x" to uncheck.  Am I missing anything?

[rjs]

@tax911 

Reread my earlier reply to ma6878 above. I didn't say to UNcheck anything. I said "put an X in the Tax-Exempt box for the market discount amount on the New Jersey Interest and Dividend Income Worksheet." You don't uncheck the box, you check the box, in the column that says "X if Tax-Exempt."

[tax911]

Thx. figured it out.

[wnetmw]

So putting an X on the worksheet will still allow you to efile both federal and state? 

I am going to have this issue this year.  I got confirmation that accrued market discount is NOT taxable in NJ from NJ Division of Taxation.

[rjs]

@wnetmw  Yes, you can still e-file if you put an X in the Tax-Exempt box. It's a New Jersey worksheet, so it doesn't affect the federal tax return at all. You can e-file the New Jersey return with the box checked.