A friend provided me with the following analysis to think through how to report my T-bills sold prior to maturity. Hypothetical example:
--Bought a Bill at $970 which would have matured in 182 days at $1,000.
--However, sold it after 160 days for $995.
--Now, I would conduct a linear extrapolation between the purchase price and the value at maturity based on the days I owned the security. I was supposed to earn $30 over 182 days. At 160 days I earned $30 * (160 / 182) = $26.37. That would be my interest income. Also, since I sold a bill that was supposed to be worth $996.37 at $995, I had a short-term capital loss of $1.37.
--My broker reports the $25 as interest income on my 1099. So I need to correct it to $26.37 interest and then create a separate entry to report a capital loss of $1.37.
First, does the above analysis make sense? Second, how do I actually enter all this stuff and "create a separate entry" in TurboTax to reflect the interest income and the capital loss?
