Accrued market discount from Treasury bills and notes

Forum|Forum|4 years ago
May 11, 2021
2 replies
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When you sell a treasury security, on the 1099-B part of the gain is attributed to accrued market discount and part to capital gains. Turbotax correctly records the accrued market discount as interest on schedule B of the 1040.

However, when this is transferred to the state return (at least for CA), I can see no way to tell Turbotax that this is treasury interest and therefore exempt from state taxes. All I can see is to override TurboTax's calculations. Intuit support also could see no way to do this.

Am I missing something? It seems hard to believe that Intuit is incorrectly calculating state taxes for everyone who sells a treasury security.

Just to head off the typical responses: This is not a treasury interest payment from 1099-int or from a mutual fund on 1099-Div. This income is reported on 1099-B as accrued market discount (box 1f).

notAnAspiringAccountant

Hi - Did you ever find an answer to this? I'm dealing with the same thing this year.

RobertB4444

While an accrued market discount is earned over time in exactly the same way that interest is it is not seen as interest for tax purposes either federally or in California and is therefore taxable by the state.

@notAnAspiringAccountant

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notAnAspiringAccountant

Is that the case for just California, or all states (ie, that it is not tax exempt)?

EDIT: Actually, never mind. I think my case is different. I held the securities till maturity; I didn't sell them like it appears OP did.

17499

I too am not a tax expert but accrued market discount was paid for by the seller that sold it at discount. It in not interest being paid for by the US government and therefore not tax exempt on state returns.