How do I enter in the accrued interest I paid on the purchase of a tax free bond so it lowers the interest amount on line 8?

[johnpeterson7828]

Previous versions of Turbotax allowed you to adjust the interest by entering in the accrued interest paid on a purchase.

[TomYoung]

I'm assuming that you're entering information in the 1099-INT interview.

Nothing has changed in this interview from the prior year, at least not in the desktop editions.  After entering your 1099-INT information you click "Continue" and on the next page - "Tell us if any of these uncommon situations apply" - you tick the box next to "I need to adjust the taxable amount."  You then tell TurboTax the state(s) involved and on the page following that - "Report Interest Adjustment" you enter the amount and tick the "My accrued interest is included on this Form 1099-INT."

Tom Young

[johnpeterson7828]

Thanks Tom.  Yes but that will NOT change the tax free interest.  That is only for taxable interest.

[TomYoung]

As far as I know TurboTax has never made a distinction between taxable and tax free interest in this area.  The only work-around is to enter the 1099-INT "as if" you received separate 1099-INT's, one for the taxable and one for the non-taxable interest.  That works fine.

[welbike]

This does not work!!!  Turbotax still refuses to reduce my tax-exempt interest paid by the amount of accrued interest

[ccfioretti]

I just added up the taxable accrued interest and adjusted that amount off.  If you include tax free and taxable accrued interest, you are asking for an audit.  Not sure if that is the best way to do it, but it has served me well in years past.

[slchodos]

Why can't Turbo tax allow you to split accured interest into taxable and non taxable instead of having to generate new 1099 interest sheets. this defeats auto download.

[skil]

I saw this post and am wondering how to solve the same problem since it is affecting my NJ tax return.

I have a 1099-INT with ALL tax-exempt interest.  Some of that interest was accrued.   

I live in NJ and all the interest IS taxable in NJ so I want to exclude the accrued interest from the total interest.  It does NOT appear like I can do this.  When entering the 1099-INT, I cannot adjust the tax-exempt interest.  It only allow for the adjustment of taxable interest, which is useless to me on this 1099-INT since there is no taxable interest.   But, I did try to see if adjusting the taxable interest would work, so I put in a positive value under REPORT INTEREST ADJUSTMENT, but it did nothing to affect my NJ return.

I thought a workaround would be to enter the accrued interest as part of the tax exempt interest for NJ, but this messes up the NJ tax form that calculates interest because Turbotax tries to allocate the 1099-INT Bond Premium on Tax Exempt Bond (line 13), which I really don't want.

Short of overriding the INTEREST AND DIVIDEND WORKSHEET for NJ to manually add the accrued interest to the ADJUSTMENTS column, is there another way to get Turbotax to subtract the accrued interest from my NJ taxable interest?

[ThomasM125]

In a situation like this, you can enter the interest as taxable on the federal return, then enter an adjustment in "Other Income" to reduce the otherwise taxable interest back down to zero. 

In TurboTax, go to the "Income and Expenses" section, then "Less Common Income", then "Miscellaneous Income" and then "Other Reportable Income". You enter a description for the adjustment (Adj for exempt interest) and enter the adjustment as a negative figure.

On your state return, you should see an option to remove the adjustment so your state return will pick up the interest as taxable.

[skil]

Appreciate the reply but I don't think this makes a lot of sense.  Your last sentence indicates that the income ends up being taxable for the state.  I'm trying to avoid this.

Here's the example:  I have 10K in tax-emempt interest on my 1099-INT (Box 8).   It's the only interest that appears on this 1099.   But, I know $2K of the $10K is accrued interest.   On Federal the $10K is not taxed - I'm good there.  On my NJ state, all 10K is taxed.  But, only $8K should be taxed.   I am looking to understand how I can remove $2K of interest from my NJ return since this is accrued interest.  RIght now, I'm going in and overriding the interest on my NJ INTEREST AND DIV INCOME Worksheet because I have not found where Turbo Tax can reduce accrued interest from my NJ interest.

[JosephF8]

If the only place you entered interest from the 1099-Int is in box 8. We will need to go back to where you entered this on the Federal return to adjust the amount.

From Wages and Income under Interest and Dividends

Next to Interest on 1099-Int select Update.

From Here's the Interest we have so far select Edit next to the one we're working on.

On the next page hit Continue.

On the page Tell us if any of these uncommon situations apply.

Select I need to adjust the taxable amount. Hit Continue.

On the next page select Done.

You will then come to this page. Entering the $2,000 here will make the taxable amount that flows to NJ $8,000.