To arrive at Connecticut AGI, should federal AGI be increased by tax exempt interest and reduced by premium on tax exempt bonds? TT is doing that but is that proper?

[anacamuli]

CT modifies federal AGI by adding tax exempt interest to federal AGI.  But, Turbo Tax is only adding the excess of tax exempt interest over bond premium on tax exempt bonds (similar to the calculation on line 2a of Form 1040) to federal AGI to arrive at CT AGI.  Is there an error in the software or is there something I need to do to ensure that federal AGI is increased by the full amount of tax exempt interest?

[JohnW152]

The computation is correct. 

Interest which federal law exempts from federal income tax but does not exempt from state income taxes is considered an addition to federal AGI on your state return.

Bond premiums on bonds that provide interest taxable in Connecticut, but exempt from federal income tax, are subtractions.

See Form CT-1040 Instructions Form CT-1040 Instructions for more information.

[anacamuli]

Is the bond premium a reduction only if the bond is acquired/held in the taxpayer's trade or business?  If so, does Turbo Tax ask if the bond is held in the taxpayer's trade or business?  Please see Conn. Agencies Regs. A sec. 12-701(A)(20)-3(a)(8).

[trishjar]

I was just audited by CT for 2020 and the calculation was not correct.  CT doesn't allow deduction of the TE Bond Premium.  My CT return was incorrect because TurboTax added back to the AGI only the net TE interest not the full amount.  I'm out an additional $675 in interest and penalty.  Hopefully, Turbo Tax has fixed this error.

[JotikaT2]

You may be eligible to make a claim under the TurboTax Accurate Calculation Guarantee as shown in this link.

Please read through the information and if you qualify for the terms, you can proceed to submit your information which will be reviewed.  If the claim is approved, you may be reimbursed for any penalties and interest from the date of your first notice from the state taxing agency. 

@trishjar