When you buy a bond on the open market (not newly issued) there is usually accrued interest that the bond has earned but that hasn't yet been paid out. You pay the accrued interest amount to the seller at purchase (which the seller then owes taxes on). You are basically reimbursing the seller for that interest that the bond earned while they still held it. When you receive the next coupon payment it will pay you, as the "nominee," the interest the bond earned while the seller still owned it, plus the interest for the time after you purchased the bond. When I purchased bonds, my 1099 then showed in its Supplemental pages "Accrued Interest Paid on Purchases." This is for my information only though, not reported to the IRS. So I think you are good.
Accrued interest is not part of the cost basis. You are subtracting the accrued interest paid from your interest income, not from capital gains.
