1099-INT Accrued Interest Not Flowing to NJ State Return

[Murray1949]

I've already filed. However, I realized that I forgot to enter the Accrued Interest Paid on Purchase adjustment. So now I'm making that modification to file an amended return..

I make the entry for the accrued interest adjustment on a few 1099-INTs and the Federal return updates just fine. The taxable and tax exempt interest entries update and on Schedule B there is the additional line for Accrued Interest and the appropriate negative amount. Wonderful.

However, as the tax (refund) amounts were updating, I noticed it was not for the state for the most part. After all my data entry, I'm comparing the total interest amounts which were previously matching up between Federal and State, and now they no longer are.

Through trial and error and reviewing the 1099-INTs, I narrowed it down that if Box 11 (bond premium) or Box 13 (bond premium on tax exempt bond) is filled in, then the accrued interest adjustment doesn't flow to the state return. If I remove the Box11 and Box 13 entries on the 1099-INTs which have it, then the accrued interest adjustment does flow to the state return as expected and the Federal and State interest totals again match.

Does anyone know a reason why this would happen? Or is it a bug? I believe I have a workaround that should suffice, to create an additional 1099-INT manually for each just with the accrued interest, but it would be nice if TT handled it correctly.

Thanks.

[LindaS5247]

Interest from corporate bonds and U.S. Treasury bonds is typically taxable on your federal return but U.S. Treasuries are exempt from state and local income taxes. Conversely, most interest income earned on municipal bonds is exempt from federal income taxes. So this could account for why you are seeing the differences.

If you enter your Forms1099-INT as shown (and they are complete and correct), this information will properly flow to your state return.

Also, click here to see this post, which may provide additional clarification.

Click here for information on entering Form 1099-INT.

[Murray1949]

Thanks for your reply @LindaS5247 . However, I am referring to "Accrued Interest Paid on Purchases".

When purchasing a bond in the secondary market (not new issue), as the buyer, you pay the seller the accrued interest from the last payment date through the purchase date. The seller has collected his interest from you for the partial period he held the bond. On the next interest payment date, you will get the full interest payment for the period from the issuer of the bond though you did not hold the bond the entire period. The net amount between what you collected from the issuer on the payment date and the Accrued Interest you paid the seller results in the interest you earned for the partial amount of time you held the bond during that period.

Now, when the broker reports the 1099-INT information, Box 1 contains the full amount of interest you were paid from the issuer. Because you paid the seller the Accrued Interest, the full interest amount needs to be adjusted (lower) by that amount. TurboTax provides for that, as I described in my original post. In the 1099-INT details, TurboTax provides a screen to enter the adjustment amount, and to indicate is was for Accrued Interest Paid on Purchase that is included in the Box 1 amount.

The issue is not between taxable and tax exempt interest as it applies to the state. It is TurboTax's handling of the Accrued Interest adjustment amount when there is information in Box 11/13.

See the Feb 22, 2023 reply on this thread from @MarilynG1 :

https://ttlc.intuit.com/community/taxes/discussion/how-to-report-accrued-interest-paid-on-bonds-purc...