I have interest income from tax exempt bonds and ammortizationon my 1099. Why does turbo tax put the ammortization in itemized deductions rather than adjust the income


There can be times that an itemized deduction is appropriate.  Don't know if this actually applies to you or you just made a mistake.  Pub 550:

How To Report Amortization (Taxable Bonds)

Subtract the bond premium amortization from your interest income from these bonds.

Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Under your last entry on line 1, put a subtotal of all interest listed on line 1. Below this subtotal, enter the amortizable bond premium allocable to the interest payments for the year and label this amount "ABP Adjustment". Subtract this amount from the subtotal, and enter the result on line 2.

Bond premium amortization more than interest.

If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can include the difference in Other Miscellaneous Deductions on Schedule A (Form 1040), line 28.

But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Any amount you cannot deduct because of this limit can be carried forward to the next accrual period.

Pre-1998 election to amortize bond premium.

Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium does not apply to bonds you acquired before 1988.

Bonds acquired before October 23, 1986.

The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2%-of-adjusted-gross-income limit.

Bonds acquired after October 22, 1986, but before 1988.

The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you choose to treat it as an offset to interest income on the bond.

Tom Young

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