I had a Goldman Sachs certificate of deposit. Although the interest isn’t paid until the CD's maturity date, an estimate of the interest earned for the year is reported on Form 1099-OID and is taxed at the ordinary income rate.
When the CD matured in Nov. 2021, it was sold and the proceeds, cost basis, and gain/loss were reported on Form 1099-B as a redemption and ordinary gain/loss. But the 1099 also lists an amount labeled “interest shortfall on contingent payment debt.” The amount is also listed in the “Detail for Interest Income” section of the 1099.
The interest shortfall amount is equal to the total OID that I have paid taxes on since the CD was issued. I shouldn’t have to pay taxes on the entire gain from the sale since I’ve already paid taxes on the total OID. One way to handle this is to reduce the cost basis by the interest shortfall amount, which in this case will turn the gain into a loss. Is this correct? If not, how should it be handled?
The 1099-B has additional information that says “Redemption” and “Ordinary gain/loss.” On the Turbotax screen that says “Any of these less common items on your 1099-B?” I assume I should check Box 2, Gain or loss is Ordinary. Is that correct? How does checking that box affect the tax rate applicable to the loss?
