1099-B Capital Gain With $ in Box 1f Seems Wrong

[joeandelena]

Here's a fun one.  Try it yourself.  A cd that I bought in the secondary market matured in 2020.  I held in for 2 ½ years.  The statement from the bank shows a capital gain of $1000.  There are 2 ways to enter items on 1099-B.  You can enter the summary of all capital gains, or you can enter them individually.  Given $40,000 proceeds, $39,000 cost, and $1000 in box 1f (Accrued Market Discount), entering the values as a summary and as an individual entry gives 2 different results, and neither matches what the bank says ($1000 capital gain).  Any help or sympathy would be appreciated. 

[fanfare]

You should see zero gain on Form 8949 and $1,000 on your Schedule B. Or Line 2b of Form 1040.

[joeandelena]

I click "I'll enter one sale at a time"

Sales price = $40,000

Cost = $39,000

Sales category = Box D

Click "continue"

Accrued market discount = $1000

Click "done"

Click "continue"

This page shows that my gross proceeds were $40,000

Click "done"

Now, the summary of sales page appears sowing that my Net Gain/Loss is 0.

It should be a gain of $1000, correct?  The broker confirmed that it should be $1000.  What did I do wrong?

[fanfare]

Your broker is giving you misinformation. you did it correctly.

Look at Form 1040 Line 2b as I mentioned above, and you should see the $1,000 "gain" included there.

[joeandelena]

"Interest"ing.  We also have a cd that we purchased from Schwab's secondary market mature this year.  It has an accrued market discount that is reported as interest, not capital gain.  Fidelity reports it as a gain.  That was not what I was expecting, so I called them early last week.  They tell you that they're not tax advisors, but I convinced them that it would be in their best interest to have their forms right.  They bumped it up.  The reply was that only bonds that were discounted at original offering would be treated as interest.  Since I bought the cd on the secondary market, they treat it as a capital gain.  You and I, Schwab, and TurboTax disagree.

[joeandelena]

And yes, you are correct.  The interest on the TurboTax "Your 2020 Income Summary" page includes the gain from the sale of that cd purchased on the secondary market, as does 1040 line 2b.

[joeandelena]

In conclusion (I think):  Tax treatment of bonds purchased on the secondary market and held to maturity, with a dollar amount in box 1f (accrued market discount).

Fidelity INCORRECTLY reports the sale as a capital gain.  It should be interest.

TurboTax Deluxe INCORRECTLY reports the sale as a capital gain when using the option to enter the summary values from form 1099-B.  It asks if there is any if there are values in box 1f, but when you check the box, it never asks for the amount in box 1f.  The sale is incorrectly reported as a capital gain.

TurboTax Deluxe CORRECTLY reports the sale as interest when using the option to enter the sale individually.  The only problem is that there will be a conflict, since Fidelity reported the sale as a capital gain to the IRS.

Entering info using the Fidelity statement and TurboTax's 1099-B summary option reduces my taxes and eliminates any conflict with Fidelity info sent to the IRS.  I guess that makes my path forward pretty clear, wrong as it may be.

[fanfare]

Regardless of tax software anomalies,

since interest rates are zero, why are you buying CDs?

Over 2 1/2 years you got maybe  1% annually of which you will give 24% or more to the US Treasury.

Meanwhile Tesla is under $700 and should rebound over $800 shortly.

TINA.

[joeandelena]

I will loan you $700,000 today.  All you have to do is guarantee me that you will give me $750,000 one year from today (use your house, cars, bank accounts as collateral).  You'll make an easy $50,000.     YETI

[fanfare]

No, you'll make an easy 50,000, so, no deal.

[fanfare]

I see you want me to margin up and turn 1,400,000 into $1,500,000

Actually your $700,000 is sufficient collateral so I don't have to put  up anything else.