Treasury Bond Interest not transferring as a credit to State Tax

[Penniless]

Why is Treasury bond interest not being subtracted from my taxable income in my state tax form? I have the treasury bond interest correctly shown in Box 3.

[RobertB4444]

Which state form are you filing?  On most of them you need to specify what portion of the interest in box 3 is exempt from tax.

[Penniless]

Utah TC-40.      1099-INT Box 3 specifically states "Interest on U.S. Savings Bonds and Treas. obligations".  Is there another Box that I need to fill in to confirm that the amount is 100% ""Interest on U.S. Savings Bonds and Treas. obligations" so that that amount is exempt from state tax?

[RobertB4444]

Yes.  It should have carried over to your Utah return as 'tax-exempt' but since it didn't you should go to your state return to the section for "Here is the income that Utah handles differently" and scroll down to investments to make sure that the interest is excluded from the taxable state income.

[Penniless]

There is a note under interest adjustment on the 1099-Int link that says "Enter any adjustment to your xxx  interest as a positive number. If you need to add to the interest reported on this 1099-INT, enter the amount as a negative number."  The amount in question was interest that was paid to the previous owner of the secondary bond before I bought it; and was reported on my 1099-B as "Capital Gains Accrued Market Discount".  When I entered that amount as a positive number it correctly deducted that amount from my Federal tax,  but on the TC-40 it simply isn't showing up as a credit against the income that bond earned.  

[KrisD15]

Please enter the adjustment in the State section in TurboTax as a subtraction (there should be a screen for additions and a screen for subtractions)  which should then show on your Utah TC-40 Part II (Code 71) "Interest from Utah municipal bonds and U.S. government obligations".

[Penniless]

I'm not finding that screen that you are referring to, and I've been through the State tax walk-through three times. Please provide more information on how to find it.

[RobertB4444]

Are you using the TurboTax desktop version or online version?

[Penniless]

online

[AmyC]

When you enter the 1099-INT box 3 is automatically exempt in every state. I created a return and entered the 1099-INT with $150 in box 3 using the online version in federal income. I moved over to Utah, and the income shows as not taxed. 

Next, I went to tax tools on the left, tools, preview and looked to see the money shown as a deduction.

Please review your Utah to see if your forms are similar to mine.

If you want to print or view  your forms, including all worksheets:

• In desktop, switch to Forms Mode. 
• For online:
  1. On the left side, select  Tax Tools
  2. Select Print center
  3. Select Print, save or preview this year's return
  4. If you have not paid, select pay now.

[Penniless]

The transfer of interest information to the state return, as you demonstrated, is working properly. I never had a problem with that.   What is not  working, as I noted previously, are the interest adjustments.  I was told by you guys to put the interest adjustments in the "uncommon situations" screen.  The screen says "Do any of these uncommon situations apply". I click the box "I need to adjust the interest reported on my form".  then "continue".  The next screen says: Tell us about your interest adjustment". I put in the dollar amount and select "My accrued interest is included in this 1099-Int".  That is the problem.   That amount is  credit for interest that I did not receive, and it is not being subtracted from my state income. 

[RobertB4444]

I'm not sure who told you that you need to adjust the interest using the uncommon situations screen.  If you just leave it alone then it should carry over to the state return just as @AmyC showed you.  Go back through those screens and undo all of that information and it should be on your Utah return just fine.

[Penniless]

I must not be communicating clearly, because my question isn't getting answered, so let's start over:  My original question was where do you put  the “Accrued Interest Paid on Purchases” amount into your program?  By way of explanation:  When you buy a Treasury Bond on the secondary market the “Accrued Interest Paid on Purchases” represents the interest that had already built up before you bought the bond—money you essentially "pre-paid" to the seller. You must report the total interest received from the treasury bond issuer (which includes that "extra" amount you paid the seller), but you then subtract the "Accrued Interest Paid" on Schedule B. This ensures you only pay taxes on the interest that actually belongs to you.    So... Does Turbotax have a box where I can put that number so that it gets added and subtracted from the right schedules?

[AmyC · Accepted solution]

Fresh start and I now understand that you have a 1099-INT with treasury obligations in box 3 as the starting point. Please follow these steps:

1. Open your return to the federal income section
2. Select your 1099-INT and see if you have entries in box 1 and box 3. If so, split your form into 2 entries. Create a form and enter the box 1 information and all other boxes with box 3 blank. Then create the 2nd form for box 3 income. It isn't necessary, usually, but it can prevent trouble.
3. On Tell us if any of these uncommon situations apply
4. select I need to adjust the interest reported on my form
5. Enter you accrued interest paid as a positive number
6. In the dropdown menu, select My accrued interest is included  in this Form 1099-INT

[Penniless]

Thank you.   I have one remaining issue to resolve, but this may not be the forum for that question. When  checking TurboTax's results I multiplied my taxable state income by our state tax rate (4.5%) but the Turbotax  result doesn't match my manual calculation. Gotta figure out why.