This has been a topic of much discussion over the past couple of years here because AMD on Treasury Notes is not actually considered deductible in some states and can be ambiguous in others. NC has been the clearest cut as they specifically had a court challenge & ruling that it's not deductible.
The general argument from folks that it's not interest from a US Gov Obligation is because the market discount is being created by some third party thru the secondary market, not the government directly (tho Notes could also have some OID). Some states use different language for interest vs. income, or stipulate they follow Fed guidelines.
So I don't think TT takes a position on this at the state level and therefore does not exclude it automatically.
If your state does consider it as non-taxable then you can enter it into the state program as a manual adjustment (there should be a screen to make manual subtractions and additions from income).
If you're not sure your state treats it as non-taxable or concerned with the adjustment, you'll need to consult a CPA as I don't think you will get definitive answer here to base a tax filing on.
Expect this to be another hot topic this year. There is a long-running thread on this topic here.
hhttps://ttlc.intuit.com/community/taxes/discussion/accrued-market-discount-on-treasury-bonds-state-t...
