Is Bond Premium Amortization of a US treasury bond treated differently than other taxable bonds?

[vandora]

Broker's instructions re bod premium amortization reads: For a taxable covered security (other  than a US Treasury Obligation)  , and then  continues explaining.

[TomYoung]

Bond premium on an US Treasury bond is shown in Box 12 instead of Box 11.  It's a reduction in non-taxable interest instead of a reduction in taxable interest.

Tom Young

[massachusetts1]

Hi,  Could you or someone please elaborate more as to which Form the Box 12 would be on?  I only have the 1099INT form from bank.  No Box 12 or 11 on it.

Also, are you saying that the interest accrued over the years of the bond is non-taxable when cashed?  (no tax has been paid on these bonds yet)

And, is anything paid on the base/face value of original bond (what it would have accrued to) ?

Much appreciated.

Massachusetts

[DaveF1006]

Bonds typically earn interest, which is the amount that a bond can be redeemed for above its face value. This is what is commonly referred to as a bond premium. If there is a bond premium amount listed in Box 11, then this is a taxable event because the interest accrued increased the face value of the bond.

[td-inoue]

Am wondering if others have encountered a problem with the amortizable bond premium on treasury obligations (1099-INT, box 12). In TurboTax Deluxe 2020. System used: MAC Big Sur. For 2019 there was no problem: T.T. simply recognized the Box 12 value and generated the bond premium deduction on Schedule B. (Selecting “need to adjust the taxable amount” was optional.)

For 2020, my experience: In the FORMS list, the relevant INT record is flagged, and the Box 12 value is highlighted and ignored—no deduction is produced. It did no good to try to “coax” T.T., in the INT input window for the relevant TIPS item, by clicking on “need to adjust the taxable amount” and entering the amount. The T.T. “Federal Review” step also disregards what T.T. views as an “anomaly.”

But if the amount is moved to Box 11, the deduction on Schedule B is produced. That happened whether of not “need to adjust the taxable amount” also was selected, in which case one can choose “ I amortized a premium I paid on a treasury obligation.” But I wish Box 12 was recognized!

[fspeltzm]

i had a different problem.  box 12 exceeded  my box 1 interest income.  ttax deducted box 12 from interest income, which i believe is correct. however, after my 1040 was generated error check said that i could only deduct box 12 up to the box 1 amount & that i could deduct the remainder in some other unspecified place.

i tried an override for an investment interest expense on schedule B.  this showed on the form but was then ignored when generating the 1040.  clearly there is a bug here & sending users to unspecified places to fix it is ridiculous.

[ReneeM7122]

To accurately enter in your 1099-OID, please follow these steps:

1.  Click on the tab "Personal" at the top of your screen and then just below it click on the grey oval that says "Personal Income"

2.  This brings you to the page titled "Your 2020 Income Summary"

3.  Scroll down to the "Interest and Dividends" section and click on "Visit All" - JUST to be on the safe side in case you might have anything

     accidentally lingering in the other 1099 sections

4.  Then, once at the 1099-OID section, titled "Miscellaneous Investment Income", check off the first box to the left of "From 1099-OID"

     then click "Continue"

5.  On the next screen titled "Any OID for 2020" click on "Yes" and then on the next screen that is titled "Let us enter your 1099-OID"     

     SELECT THE LAST OPTION "I'll type it in myself"  as this will ensure that all information from your 1099-OID is getting entered

     correctly into the system. I've already checked the 2020 1099-OID IRS Form and it is exactly like the one in the TurboTax System. I

     hope this helps.

Form 1099-OID

See this thread about Bond Premium Amortization by Wendy.

@fspeltzm

[roses1257]

I bought U.S. treasury bonds at a premium and have interest income reported on 1099-INT line 3.  Amortization of the premium is reported on my 1099-INT on line 12 as "covered" lots. 

I've entered both amounts in TurboTax.  The line 3 income is included in by 1040 (line 2b), but the offsetting amortization is not included on that line - so my taxable income is overstated.  Is there a way to fix this?  

[DaveF1006]

 Yes, if the amortized portion is reported on line 12 and if you interest is being reported at full value, you may enter a ADP adjustment to offset the income.  Before you do however, make the amount listed on line 1 is not net income (taking in account that the income is already offset by the bond amortization).  Here is how to enter the adjustment. 

1. Click on Federal 
2. Click on Wages and Income  
3. Click on I'll choose what I work on (if shown)
4. Scroll down to Less Common Income
5. Scroll down to Miscellaneous income>other reportable income
6. In the description Box, enter ADP Adjustment>then -XXX.XX.  Besure to enter a minus sign in front of the amount.

@roses1257 

[roses1257]

Thank.  Yes, I have confirmed that 1099INT line 3 represents cash interest received in 2022.  I followed your instructions and can now see the amortization as a negative amount on 1040 line 8.  I guess that's ok, but not really where it belongs.  Fortunately the amount is not large.  Can you explain why TT does not seem to handle premium amortization on US government bonds correctly?

[DianeW777]

It depends.  You can enter the US Treasury Bond as follows and the interest will be reduced on line 2b of your 1040. You would need to remove the previous entry under Less Common Income - either way achieves the correct result for your taxable income. 

1. Open your TurboTax Return 
2. Search (upper right) > type 1099int > click the Jump to.. link > click on the 1099-INT  and Edit
3. Enter or confirm your Box 2 and Box 12 amounts > Continue
4. Select 'I need to adjust the interest reported on my form.' on the 'Do any of these uncommon situations apply?'
5. Enter your amount from Box 12 and select the reason for adjustment > Continue
6. Complete the entry and then you can use Preview My 1040 to review
   • How to Preview My Online Return Before Filing

@roses1257 

[roses1257]

Ok, that works and gets the amortization into the correct line on my 1040 - thanks.  The only minor issue is that the Reported Interest Adjustment page only allows the user to check one item from the list.  In my case I am making two adjustments, one for premium amortization and another for accrued interest.  Since the amortization adjustment is larger I'm choosing that one.  

[DMarkM1]

Use a combination of the two entries.  Enter the amortized premium in the 1099-INT section entries and the accrued interest adjustment in the "Other reportable income" topic.  Be sure the description shows the reason as "ADP Accrued Int Adj"