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Adjust State Return for Accrued Interest on Treasuries

Forum|Forum|3 years ago
March 20, 2023
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On my federal return I have entered an accrued interest adjustment when entering my 1099-INT data. All accrued interest was for bonds that paid out their interest the same year, so there was no carryover complication. However some of the accrued interest was for Treasuries. Since the interest on the Treasuries is not state taxable I am aware that I have to enter another adjustment on the state return to reverse the adjustment I made on the federal return. Can anyone tell me where I do that? I am using turbotax desktop. I assumed it would be somewhere in the "Changes to Federal Income" section, somewhere under "Investment adjustments" but can't find something specific to the situation. I am filing a New York state return, but I would guess the answer is the same for any state.

Thanks!

Best answer by SteamTrain

It might depend on what state is involved:

...but if you removed the accrued interest you paid to the seller on the Federal tax forms...that should automatically be reflected in the state forms. i.e. There should be a subtraction somewhere on the state form for that that equals = (Interest received) minus (Accrued interest paid)

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A warning though.....IF the 1099-INT you are entering, also has any box1 or box 8 $$ along with your box 3 entry and accrued interest...you need to take the box 3, 12, $$ out of that 1099-INT, and put it on a separate 1099-INT before you report the accrued interest you paid the seller. If you don't, the accrued interest will be proportionally applied to the box 1,3,and 8 values.

SteamTrainAnswer

Employee

It might depend on what state is involved:

...but if you removed the accrued interest you paid to the seller on the Federal tax forms...that should automatically be reflected in the state forms. i.e. There should be a subtraction somewhere on the state form for that that equals = (Interest received) minus (Accrued interest paid)

__________

A warning though.....IF the 1099-INT you are entering, also has any box1 or box 8 $$ along with your box 3 entry and accrued interest...you need to take the box 3, 12, $$ out of that 1099-INT, and put it on a separate 1099-INT before you report the accrued interest you paid the seller. If you don't, the accrued interest will be proportionally applied to the box 1,3,and 8 values.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

L

lpoleshuckAuthor

Thank you @SteamTrain for that response. Just to be sure I understand you, I should take the one 1099-INT I received and enter instead two, with the same brokerage name, but putting the box 1 amount in one 1099-INT worksheet and the box 3 amount in another. Then I would apply appropriate accrued interest adjustments to each one of them, rather than a single accrued interest total in a single 1099-INT worksheet. And if I do that, then TurboTax will handle the rest for me. Did I get that right?

SteamTrain

Employee

Correct...

if you have some other Non-US Govt taxable bonds (or brokerage CDs) that produced interest in box 1....and no box 8$$

Then that's two separate 1099-INT forms from that brokerage.

1) Then any box1 & 11 $$ need to be on their own 1099-INT before reporting the accrued interest related to those $$.

2) Then any box 3 & 12 $$ need to be on their own 1099-INT before reporting the accrued interest related to those $$.

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Some year, TTX may get smart and supply 3 separate lines for reporting "Accrued Interest" paid to a seller, specifically for the box 1, 3, and 8 values...but so far, they haven't done so.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

SteamTrain

Employee

As an example for my NC tax return:

...I entered a 1099-INT with $2222 from US Treas, in box 3

.....then entered $222 ass accrued interest I paid the seller on the follow-up page.

Only $2000 was included in Federal taxable income...and only that $2000 was automatically transferred to the proper NC tax form as a subtraction from NC income.

________

For NY, that looks like it should be on line 28 of the main Form IT-201

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*