Mismatch of tax free interest between Fed and CA

[KathrynC]

I need to split income between two states so trying to match turboTax numbers to various 1099s. When I look at Fed Tax free interest from Muni Bonds (interest minus bond premium) it does not match what gets transferred to CA form--for either myself or my daughter. It's not off a lot -like $3 for me and $8 for my daughter but without a good match makes it hard to figure out what goes into the numbers so we can split the income. It looks like should be a direct pass over number but isn't. Is this a glitch? A rounding thing? In addition the amounts on the CA interest worksheet don't seem to match CA versus non-CA interest compared to my statements. So is there something tricky there I need to do?

I think ultimately what I need to do apply the bond premium to each coupon payment and them split based on dates so interest and bond premium gets allocated properly but without matching numbers.......

[MonikaK1]

Depending on the types of bonds involved, the Federal amounts may be different from the California amounts. 

Federal law requires the interest earned on federal bonds (U.S. obligations) to be included in gross income. California does not tax this interest income. The following are not considered U.S. obligations for California purposes: Federal National Mortgage Association (Fannie Mae); Government National Mortgage Association (Ginnie Mae); or Federal Home Loan Mortgage Corporation (Freddie Mac).

California taxes the interest from non-California state and local bonds.

Regarding bond premium, you are required to amortize the bond premium each year and this will reduce your basis (what you paid).  So when the bond matures, your basis will be the face value of the bond.  

For tax-exempt and taxable bonds, this adjustment happens automatically when you enter the amount from Box 13 and Box 11 in the 1099-INT section of TurboTax.  The adjustment will reduce your amount of reportable tax-exempt interest on Form 1040, line 8b.  For taxable bonds, the adjustment will reflect on Schedule B, Part 1.

If adjustments for bond premiums are not reflected on your 1099-INT, you can manually enter the bond premium adjustment in the 1099-INT section of TurboTax.  This is also where you can report any accrued interest paid.

Please see the explanation and instructions in this thread for more information.

Please also see IRS Publication 550 for more information.