TurboTax added an interest on its own to my Schedule B, as a result of a 1099-B which reports gain from U.S. Treasury Bonds

[ChacChan]

TurboTax added an interest on its own to my Schedule B, as a result of a 1099-B which reports gain from U.S. Treasury Bonds.

This interest flows into my California tax.

How do I remove this interest (that TurboTax added on its own) from California since Treasury Bonds gain is not taxed in California

[MarilynG1]

Yes, if your 1099-B reported Accrued Market Discount in Box 1f, this automatically is reported on Schedule B as interest.

Market discount is the difference between what you paid for a bond, and the maturity redemption price.  If you bought a $1000 bond for $950, your market discount is $50.  This discount must be included in your income, as interest, either over the period you own the bond, or when it is sold.  In box 1f your broker is reporting the accrued amount of discount over the time you held the bond. TT will show it as interest income on Sch B (look and see if it's on that form), and then subtract the same amount from your gain on the sale (Form 8949), since it's already been reported elsewhere. 

In the California interview, you'll come a to page 'Here's the Income that California Handles Differently'.  Scroll down to Investments > Interest and Dividends Adjustment.  Continue to 'Any Other Adjustments' where you can enter Accrued Market Discount, and the amount.

The adjustment will flow from the Interest & Dividends Adjustment Worksheet, to Schedule CA, Line 2. 

@ChacChan 

[ChacChan]

Dear MarilynG1 (Employee Tax Expert),

Thank you so much for your excellent reply. It works!

The sad thing is that I called TurboTax support team 3 different times. None of these 3 agents, each took a long time to research, know how to solve this problem.  I am flabbergasted at the incompetency of the support team.

Perhaps you can suggest more training, better hire screening, and way to escalate when agents don't know how to find the answer.

Furthermore, please request TurboTax software team whenever it automatically add an interest item when it see a number in Box 1f of 1099-B (Accrued Market Discount), to ask user if this is US government obligations. If yes, the TurboTax simply makes the adjustment automatically in the State tax.