If the OID instrument is not yet mature you should select "I need to adjust the taxable amount", then enter the shortfall as a positive amount. Next, select "This is an original issue discount." TurboTax will reduce the taxable interest amount. (see image attached)
The best way to check your entry is on your tax return by choosing to preview your 1040.
To use this tool while you are signed into your TurboTax account follow the steps here (desktop).
- Select Forms in the upper right
- Then select 1040, in the forms tree on the left
- Scroll to line 8a to check that the interest is the reduced amount
- Select Step-by-Step to return to the interview
Review line 8a, on the 1040 and you will see the net result after your adjustment.
If the OID instrument has matured and been redeemed you should use the instructions below.
The correct procedure is to adjust the basis on the sale. In other words add all previously taxed income to the cost basis of the bond and then report the sale.
Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Your basis, generally, is your cost increased by the OID you have included in income each year you held it. In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. For a covered security, your broker will report the adjusted basis of the debt instrument to you on Form 1099-B
