What does code "D" on line 1f of Form 8949 mean?

[optca50]

What does code "D" on line 1f of Form 8949 mean? I imported from Fidelity and code D is next to several U.S. Treasuries. For example, the proceeds is $10,000, the cost basis is $9,606, code d, gain is -394, and gain or loss is "0". Just want to make sure imported correctly and I should not be taxed?

[baldietax]

Sounds correct, and you're being taxed on Schedule B not Schedule D.  These entries represent Accrued Market Discount on bonds.  The gain is adjusted down on Form 8949 by the amount of the AMD, and TT will reflect this amount as ordinary income on Schedule B.  So in this example you should see an entry for $394 on Schedule B for this with some description ending with the phrase "Accrued Market Discount".

[baldietax]

and just for awareness, if you're expecting state exemption for these AMD amounts, they will not be reflected as exempted/subtracted on your state return.  There are some ambiguities and debates on the state exemption of AMD as it depends on language and interpretation in state tax codes, but TT does not treat it the same way as the coupon interest in 1099-INT Box 3 (there is nowhere to indicate this AMD interest is related to a US Treasury).  If this is an issue for you we can get into this further.

[optca50]

Thank you for response! Yes, I thought there would be state tax exemption on treasuries. I live in CA, do we not get one or do we need to input manually?

[baldietax · Accepted solution]

ok yes so the topic of AMD exemption for states - personally I can't advise whether it's exempt in CA or not and if it's significant you may want to consult with a CPA expert in the state tax code.  But some context:

There's a general argument made on the internets that the AMD is being paid from the secondary market not the US Treasury directly so it doesn't qualify for state exemption (tho this ignores some of the market discount may comprise OID which would be coming from US Treasury); vs. arguments to the contrary based on how a particular state tax code is actually worded, definitions of interest vs. "income derived from" etc, some states like NJ exempt gains on US Treasuries as well as interest, whereas North Carolina settled in court that AMD is taxable there, etc.

I am not sure where things stand in CA on this, folks often quote memos from the FTB.  This thread is one of the originals on this topic and some discussion on CA, there may be others

https://ttlc.intuit.com/community/taxes/discussion/accrued-market-discount-on-treasury-bonds-state-t...

This other thread has some other discussion and links to more threads

https://ttlc.intuit.com/community/state-taxes/discussion/re-accrued-market-discount-on-us-treasuries...

In terms of solutions if seeking exemption the general solution is to make some manual adjustment to state tax which most state programs provide I believe tho has caused issues with e-file in NY.  There is an alternative option someone proposed using a 1099-DIV tho I'm not sure any ramifications of this but it was interesting, see the 2nd thread above for more info on this.  Another option is to file manually.

Not a CPA/Expert so just my 2 cents on this and context on this thorny topic, hope this helps.