Muni Premium and Accured Interest entry to reduce tax

[watnima]

TurboTax won't calculate nontaxable muni bonds accured int & amortized premiums on the same 1099 int. When you make adjustments on subsequent screens for the States effected, it doesn't also allow you to make the Premium adjustment. Help please!

[MonikaK1]

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.  Generally, there will not be a loss.

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.

[watnima]

Thank you MonikaK1 for your quick response.  I tried your suggestion to manually enter my Accrued Interest adjustments on the 1099 form below box 17 re: Interest I paid the sellers that they were entitled to when I purchased the bonds.  I would have expected that my refund would have increased since I should not have been taxed on interest I didn't collect, but it decreased instead.  Is my thinking correct since I didn't capture all the interest that the bond interest paid ( the seller did)  and I entered an "Adjustment to Interest" and if so why do my taxes increase (refund decreases)? Should I have entered a negative number?

[MonikaK1]

If you followed the steps from this thread, using the entry field provided to deduct interest from the amount shown on Form 1099-INT, then entering a positive number should reduce the taxable interest.

If you made the adjustment by another method, such as creating a separate Form 1099-INT, instead of in an entry field that is provided in order to deduct from interest, then yes, you would enter a negative number.

Please also see IRS Publication 550 for more information.