When you purchase a U.S. Treasury bond at a discount, the accrued market discount is generally taxable as ordinary income at the federal level when the bond is sold or matures. However, the tax treatment at the state level can vary. State Tax: Some states may tax the accrued market discount as ordinary income, while others may exempt it, similar to the interest income from U.S. Treasury bonds.For more detailed information, you can refer to the following IRS resources: Publication 550 - Investment Income and Expenses Taxation of Treasury Bonds Bought at a DiscountProvide the state and reach back out for clarifying information.

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kminzer

Question

I purchased a US treasury bond at a discount. As such, my 1099-B statement provided a value in box 1f, accrued market discount. Is this value taxable at the state?

Forum|Forum|1 year ago
March 2, 2025
1 reply
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SabrinaD2

When you purchase a U.S. Treasury bond at a discount, the accrued market discount is generally taxable as ordinary income at the federal level when the bond is sold or matures.

However, the tax treatment at the state level can vary.

State Tax: Some states may tax the accrued market discount as ordinary income, while others may exempt it, similar to the interest income from U.S. Treasury bonds.

For more detailed information, you can refer to the following IRS resources:

Provide the state and reach back out for clarifying information.

kminzerAuthor

How does AZ treat this? Is it taxable to this state or not? If it isn't, where in turbotax would I make this modification to exclude it from AZ taxable income?