Accrued Interest paid on purchase of US Treasury Notes and bonds

[Vwalsh176]

Accrued interest paid on the purchase of a Treasury note - can I deduct that interest from my reportable interest? I think so but when I read about Nominee interest it says I need to create a 1099 -how would I know who I paid the interest to?

[SteamTrain]

No...not that way...

On a page AFTER your 1099-INT there is a checkbox about needing to ADJUST the interest reported.

Then on the next page you enter the accrued interest paid to the seller, and select the reason as "My accrued interest is included on this 1099-INT".  That is what subtracts that amount

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BUT....a  point to make about the software....to get it to subtract properly.

IF your 1099-INT has a mix of box 1,3 & 8 $$ on it...then entering any accrued interest (paid out when you purchased a bond)....that accrued interest will be divided proportionally (and improperly) among the box 1,3,&8 $$ amounts.

The fix is to split out the type of bond interest...for which you are reporting the accrued interest paid...into it's own 1099-INT.

So if the accrued interest was paid on a Treasury bond (or bonds) then you need to move the box 3 &12 $$ into a separate 1099-INT before you indicate that accrued interest on the follow-up page for that separate 1099-INT form.

Same would go for boxes 1&11 together (If appropriate) or box 8 &13...depending on what bond types you purchased.

Thus box 1, 11, and any accrued interest for corporate bonds are on reported one 1099-INT

.....box 3, 12, and any accrued interest you paid for US Govt bonds on a second 1099-INT

....box 8, 13 , and any accrued interest you paid on any MUNI bonds you bought on a third 1099-INT.

Of course, if you only bought (say) some Muni's during 2024, then you'd only need to take out the 8 & 13 $$ into their own 1099-INT to report the accrued interest you paid for those.

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Final Note:  For bonds purchased in the last half of the year...if the bond you bought did not issue interest to you before the end of 2023, then you cannot report that accrued interest payment until 2024 taxes (i.e. after you actually get an interest payment from that bond).  I use a spreadsheet with notes on it to keep track. 

I even bought a Muni bond already in Feb of 2024, that issues its first interest in 2025  (then semiannually thereafter)....so the small amount of accrued interest I paid, will need to wait until I file 2025 taxes in early 2026.