Tax-exempt Muni Bond, State interest adjustment of bond premium

[dfun470]

I earn Tax-exempt interest on Muni bonds and pay a bond premium at purchase. Boxes 8 & 13 are populated.

     (None are federally taxed & only out-of-state are taxed by my state)

When entering the interest I select Various states and enter the totals by state.  I also enter (or maybe it is imported) the Bond Premium in Box 13.  Prior to this year I also 'adjusted the interest earned' using the 'amortization of bond premium' option by state AND also adjusted my Tax-exempt interest upwards on my state return by the interest earned for each of the out-of-state bond by state total.  I now believe both of these were in error, and simply entering the interest earned by state would have allowed the correct treatment of both the Federal and state taxes.

My questions are:  Is this correct and if not, how should this interest be treated in TurboTax?

AND, has TurboTax's treatment of the issue above always been this way, or did it change at some point in time?

[SteamTrain]

That can get messy when you are breaking out the interest from your own state's bonds. 

1)   When you are simply indicating all of the box 8 $$ are from non-generic "Multiple states"....then you can use the 1099-INT directly with just the box 13 value entered, and no additional adjustments anywhere   (except in the year you buy a bond that has accrued interest in the purchase ).   

2)  If you are doing the state break-out of interest from your own state's bonds from all the others AND you have bond premiums in box 13 to deal with......then you need divide up the box 8&13 amounts, and create a separate 1099-INT (from the same issuer) with only the box 8 and box 13 values from your own state's bonds, and the remaining box 8 and 13 amounts form "Multiple states" on the original 1099-INT  (or you can do the reverse...put the multiple states 8 & 13 amount on the new 1099-INT, and leave your own state's box 8&13 amounts on the original 1099-INT).

3)  In a year for which you buy a tax-exempt bond with Accrued interest on it, and the 1099-INT you get also has any $$ in boxes 1and/or3 in it.....you actually have to remove all of the box 8&13 $$ from that 1099-INT, and create two new 1099-INT forms......one new one with just your own state's box8&13 $$, and another with just the Multiple State box 8&13 values.   Then the accrued interest is reported for whichever bonds it belongs to.

Yes...it gets messy, but so far, there is no easier way to deal with it...except using #1 above  (but even with that, if you have accrued interest to report for that particular year, that will require separate 1099-INT).

[SteamTrain]

The other state's interest are just lumped together as one setting "Multiple states".  You don't need to list each state.   

______________________________

If you have any US Territory bonds interest (like Puerto Rico), that  can be broken out and included with your own state's interest ...... and for a few states, sometimes DC bonds can be included too  (NJ allows that). 

ANNND, UT residents can include other state's bond interest where the other state doesn't tax UT bond interest...essentially this means any state without an income tax.....AK, FL,NV, SD, TX, WA, WY,  (not sure about TN & NH).

[Carol607]

Thanks. This worked for me too