I have interest from US agency bond that is state/local tax free, but 1099-INT reports it as ordinary interest. How to get Turbotax to adjust?

[freddie8]

Do i have to manually decrease the bucket in the ordinary interest bucket, and manually increase the interest in the US Gov Obligations interest bucket?

[MonikaK1]

Interest income from Treasury bills, notes and bonds is subject to federal income tax, but is exempt from all state and local income taxes. See this IRS webpage for more information.

See this thread for a discussion of agency bond interest and a Pennsylvania tax return. Generally, the 1099-INT is entered as it appears in the Federal section, and the adjustment for US agency bonds is made in the state return interview. 

To make other adjustments for interest, enter the Form 1099-INT in TurboTax in the Federal section exactly as it appears. There are follow-up screens in that section that allow you to make any necessary adjustments. When you see the screen, "Do any of these uncommon situations apply?", select either I need to adjust the interest reported on my form or My state (ME, MD, MA, NH, NJ, or WV) doesn't tax all of this interest as applicable. Read the additional information at the Learn More links that appear on that screen.

Depending on your selection, TurboTax provides additional entry screens for you to enter the amount of the adjustment and the reason.

[Mike9241]

if it's from a US agency it may be nontaxable in specific states which means the subtraction would come through during the state interview.