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Level 2
January 9, 2024
Question

Interest Adjustments

  • January 9, 2024
  • 5 replies
  • 27 views

How do you handle more than one interest adjustment in TurboTax.  I have bond amortization and accrued interest.

    5 replies

    SteamTrain
    Level 15
    January 9, 2024

    OK......could be simple, could be more complex.

     

    1) IF you only have (say) Muni bond interest to report, the Muni interest goes in box 8 of a 1099-INT , and the amortized premium amount goes in box 13.  (can be total of all Munis at one financial Institution).  Then on a follow-up page, there is a box to check to indicate you have an adjustment to make.....and continuing on to the next page, you enter the $$ amount about the accrued interest you paid, and select the accrued interest reason from the dropdown menu.   

     

    The Financial institution you hold those bonds in should already show the box 8 and box 13 values on the 1099-INT they will issue to you sometime in the next 3 or 4 weeks, and you only need to enter the accrued interest on the follow-up page.

    _________

    Complications for the Software:

    2)  If the 1099-INT you receive has Muni interest in box 8, and ALSO has any $$ in boxes 1, and/or 3, along with the box 8 $$....then you will need to remove the box 8 and box 13$$ from that 1099-INT, and create a NEW 1099-INT, as-if from the same Financial provider (manual entry), that reports just the box 8, 13, and accrued interest on it's own 1099-INT.

     

    WHY?   The problem is the "accrued Interest" entry.   If any accrued interest is entered for (say) a Muni Bond, on a 1099-INT, and that 1099-INT contains a mix of box 1, 3, & 8 $$, then the accrued interest is improperly applied proportionally among those boxes, when it is only supposed to go against the box 8 $$.

     

    3) Same thing for the other bond types for boxes 1, or 3 when reported on a single 1099-INT....if any of those bond types need to subtract accrued interest you paid to the seller....those boxes (box 1 & 11 $$$ or box 3 &12  $$$ ) would need to be pulled out and reported on a separate 1099-INT.

    _______

    Final Complication:

    4)  You can only subtract the amortized premium and accrued interest in the tax year you actually get a first interest payment from that bond....so sometimes you just have to write those values down and claim them the next tax year.

    ____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
    Brad999Author
    Level 2
    January 9, 2024

    Thank you.  Great response and very clear to me now.  One more question - if I have accrued interest of $1000 and the interest payment for the year is only $500, do I use $500 in each year or wait and use all $1000 in the next year?

     

    Thanks again.

    SteamTrain
    Level 15
    January 9, 2024

    I'm not sure that could ever happen...but yeah, no more than the $$ you receive from that particular bond for that tax year.

     

    I can imagine it might happen occasionally with amortized premium paid Plus accrued interest.

    .....but just for accrued interest you paid to the seller...having trouble seeing how that could happen.

     

    ____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*