Accrued Market Discount on New York tax

[Payer06]

Accrued market discount on Treasury bonds and notes (at least if held to maturity) should be exempt from NY tax and entered on Form IT-225 and S-125 (Interest income on U.S. Government bonds).  However, the only place in the interview section to enter the amount is Investment Income from U.S. Government Agencies - Enter any investment income from U.S. government agencies or exempted by other New York State laws.   AMD is interest income exempt by NY law, not agency income. Amounts entered there under U.S. Government interest are copied to Form IT-225 line S-121 (agencies) while they should be on line S-125 (interest income on US government bonds).  There is not even a box for S-125 when you look at the forms view.

Other tax software, include professional versions, allow this to be entered correctly.  There is some controversy over the issue, but there is certainly no definitive guidance against it, many professionals believe it is the correct treatment.  TT should allow a taxpayer to choose a reasonable position, not prevent that.

How can we enter the amount properly on TurboTax Deluxe desktop version for the 2024 tax year?

[baldietax]

I agree, given the ambiguities and different state treatments, it seems TTX just took a position not to support this automatically or flexibly through to state returns.  The state software should provide ability for manual adjustments, when I hit this for VA I put in a manual subtraction with explanation.

There's a long running thread from last year on this topic here.  Not sure if there was any discussion of how to handle NY specifically in the thread.  Expecting this topic to trend again once folks get their 1099s, seems you are ahead of the game.

https://ttlc.intuit.com/community/taxes/discussion/accrued-market-discount-on-treasury-bonds-state-t...

[JeZ2]

Having the same issue in Turbo Tax filing in IL. Please provide more details regarding how to override the Treasury note income while processing the state return associated to incorporate the market discount income, which Turbo Tax isn't picking up.   The tax program just doesn't allow the user to designation the type of bond being reference in 1099-B output. Turbo Tax has no way of knowing the bond being reference in the 1099-B schedule is a Treasury note.  Thanks. 

[MaryK4]

@Payer06 @baldietax 

If you enter the Accrued market discount as Box 3 US Savings Bond/Treas. Obligations, TurboTax will subtract it from the state taxable income.  

[baldietax]

I think everyone posting about this issue on multiple threads would like to get 1099-INT with Box 3 to begin with for Treasury Note AMD, or for TTX to allow the option to designate the 1099-B AMD as state exempt.

Yes entering it as Box 3 would be excluded from state taxes.  But what you are advocating would involve manipulating both the 1099-B and adding a 1099-INT that IRS didn't get from the payer, wouldn't this create more issues on the Fed side than it solves on state?

[NYLou]

Has anyone figure how to add the accrued market discount on a Treasury Note to Line 28 on NYS Form IT-201?  It does not flow from the 1040 Schedule B Line 1?  Do I need to add to Line 30 on NYS Form IT-201?  Any thoughts??

[vitony]

I'm having the same issue with AMD being treated as Income on my PA state tax return and like the idea of amending Box 3 to include this (and remove it from the AMD box).  But will this raise red flags with the IRS and is it OK to manually adjust the 1099?

[NYLou]

I spent an 1 1/2 on the phone with a Turbo Tax "expert today.  They agreed that the accrued market discount on a Treasury Note should be adjusted on Line 28 on NYS Form IT-201?   The fix was inputing it in the "step-by-step" section "Investment adjustments"  sub-section " Exempt income from US government or exempt by NY Law".  This makes it flow to Line 31 on NYS Form IT-201.  They thought it should be on line 28 but did not have a fix and said it should be OK as long as I can support my numbers - did not sound promising!  Does anyone know if H&R Block software is better?  Any thoughts??