OID on TIPS and State Taxes

[JohnnyComeLately]

Hello, I am preparing my state tax return in after fully finishing my federal return.  In the "Changes to Federal Income" screen of the state tax portion of TurboTax, I see a line that says "Exempt Income from US Government."  When I click "Start" on that the next screen says, among other things, "Do not enter interest from U.S. government bonds reported to you on line 3 of a 1099-INT which you entered in the federal portion of the program."  This seems clear.... but line 3 of 1099-INT is only one component of what one needs to report for Treasury Inflation Protected Securities (TIPS).  The other component is Original Issue Discount (OID) which is reported separately from 1099-INT.

My question is, does TurboTax automatically apply OID entered in the Federal return to the state return such that I don't need to enter OID manually in the "Exempt Income from US Government" adjustment fields for the state return?

Thanks for your thoughts and assistance!

[baldietax]

yes it should at least for VA it does... should include 1099-INT Box 3 (less premium or adjustments for accrued interest etc), 1099-OID Box 8 (less premium etc), 1099-DIV US Gov Obligation $.  You should be able to see the subtraction on your state return and reconcile to what you input.

[baldietax]

but note the AMD of Treasuries reported on 1099-B which is removed from gain/loss and reported on Schedule B as ordinary income, is NOT automatically included as a subtraction on state; you have to deal with that manually if applicable and understand it to be tax-exempt in your state (there are various ambiguities and interpretations of this state by state).

[LindaS5247]

Yes, in general, TurboTax should properly apply your Original Issue Discount (OID) information to your state tax return. However, when your original issue discount OID involves U.S. Treasury obligations, which are usually exempt from state tax, they can be imported incorrectly as taxable income to your state.

You should review your state section in TurboTax to make sure that you do not have to make any specific adjustments for tax-exempt OID or state-specific bond adjustments. 

Depending on what state you are in, you can go to your State Taxes section, and continue through the TurboTax interview, to find the screens labeled "Adjustments to Income," "Changes to Federal Income" or "Interest Income from U.S. Government Obligations" to subtract the tax-exempt amount to adjust your income for state tax purposes.

Click here for Where do I enter Form 1099-OID?

Click here for What is Form 1099-OID?

Please return to Community if you have any additional information or questions and we would be happy to help.

[JohnnyComeLately]

Many thanks for the informative responses to my question.  I'll certainly double check the aggregate state adjustment to ensure that includes not only Treasury coupon interest (1099-INT) but also Treasury OID (1099-OID).  As for 1099-B, that does not appear to be relevant to my situation insofar as U.S. Government interest is concerned.