1099-INT and adjusting interest

Forum|Forum|3 years ago
March 16, 2023
7 replies
77 views

My 1099-INT has amounts in box 1 (interest) and box 13 (bond premium). It lists accrued interest I paid when I purchased the bonds, and also lists unrealized cost basis information subject to amortization/accretion of bond premium (since I paid a premium for the bonds). When I input the form and click to adjust the taxable amount, it gives me options to select only one of: accrued interest is included in form, amortized a premium paid on a bond, or other reasons.

The interest I paid and the amortized premium amount combined would exceed the interest of the form. Should I split the 1099 form somehow so that I can put each option separately (the interest paid, and amortized premium), or should I add the accrued interest and amortized premium paid under "other reasons"?

And are there implications for doing either option for federal or state taxes? I was not sure what is the best way to put in the adjustments, or what happens to the amortized premium if I do not use it all for now (if there will be a capital loss next year for the full amount anyway if I do not amortize it for now). Thanks!

Best answer by DianeW777

You do not lose the amortized premiums. Select the correct reason for the adjustment of your interest. The adjustment will reduce your amount of reportable tax-exempt interest on Form 1040, line 8b. For taxable bonds, the adjustment will reflect on Schedule B, Part 1. Any excess can be used as an itemized deduction under Miscellaneous Deductions, line 16, if you use them.

The deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. If this is your situation keep your records to record the amount later that you were unable to use in 2022.

D

DianeW777Answer

Level 15

You do not lose the amortized premiums. Select the correct reason for the adjustment of your interest. The adjustment will reduce your amount of reportable tax-exempt interest on Form 1040, line 8b. For taxable bonds, the adjustment will reflect on Schedule B, Part 1. Any excess can be used as an itemized deduction under Miscellaneous Deductions, line 16, if you use them.

The deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. If this is your situation keep your records to record the amount later that you were unable to use in 2022.

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J

jman3Author

Level 3

Thank you @DianeW777

Just to confirm, can I split my 1099-INT (with lines 1 and 11) into the following two entries (as if they were two separate 1099s) to take advantage of the two different adjustments as follows to cover the taxable amount:

1099-INT a: Line 1 interest (partial). Adjust taxable amount with amortized bond premium.

1099-INT b: Line 1 interest (remaining amount) and line 11 (in full). Adjust taxable amount with accrued interest already paid.

I would still have some leftover accrued interest paid that I can use next year to adjust some taxable interest then. Does this approach work? Thanks again.

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DianeW777

Level 15

It depends. The amortized bond premium must be used to offset the interest from the same bond. If this is the case you can offset the interest by the amortized bond premium as you suggest. If you have additional questions, please enter them here. It's not quite clear how splitting a 1099-INT into two separate entries would accomplish using more of the premium.

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