If you add this on Schedule A it is a deduction and not income. So you are not paying taxes on that amount.
.
Box 10. For a taxable covered security, including a Treasury inflation-protected security, shows the amount of premium amortization allocable to the interest payment(s), unless you notified the payer in writing in accordance with Regulations section 1.6045-1(n)(5) that you did not want to amortize bond premium under section 171. If an amount is reported in this box, see the Instructions for Schedule B (Form 1040 or 1040-SR). If an amount is not reported in this box for a taxable covered security acquired at a premium and the payer is reporting premium amortization, the payer has reported a net amount of interest in box 2. If the amount in this box is greater than the amount of interest paid on the covered security, see Regulations section 1.171-2(a)(4).
If there is an amount in both boxes 10 and 11, for a tax-exempt obligation that is a covered security acquired on or after January 1, 2017, and issued with OID, the amount in box 10 shows the amount of premium amortization for the year that reduces the amount of your tax-exempt interest for the year. The payer may, but is not required to, report the premium amortization for a tax-exempt obligation that is a covered security acquired before January 1, 2017, and issued with OID.
Thanks, but I am not clear on entry. Do I have to include the $10.48 in Box 10 on BOTH the 1099-OID entry page AND Schedule A? And how does one enter the amount? Thru the 1099-INT entry sheet?
The key is that this is not a deduction for Schedule A. It is an expense (bond premium) paid for a bond that is greater than face value. Because of this and if the interest was taxable, you could reduce the taxable interest income. Instead it works similarly for tax exempt interest as explained below.
Amortizable bond premium.
If you elect to reduce your interest income on a taxable bond by the amount of taxable amortizable bond premium. But identify the amount to be subtracted as "ABP Adjustment.". The premium is amortized over the life of the bond on a pro-rata basis.
Since this is a bond that is tax exempt, and the tax exempt interest can be reduced by the amortized bond premium, then you must manually track that and enter a reduced tax exempt interest amount for your tax return interest entry. Manually, the reason to track the full amount of this premium that has been used to reduce the tax exempt interest is for redemption. When the bond is redeemed (sold for tax purposes) it will reduce your cost basis in the bond for the amount used to reduce your tax exempt interest.
At the time of redemption you may have a taxable gain.
Please update here if you have more questions.
Dianew777 thanks, but I am still unsure what to do. Re paragraph 3 there is no tax exempt interest shown. All I have is Box 6 acquisition premium $6.12, Box 10 total bond premium $10.48 and box. 11 tax exemptOID $6.12.
please provide an example of what should be entered so I can follow it.
To accurately enter in your 1099-OID, please follow these steps (it doesn't take long, just looks like a lot):
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.
I'm having the same problem. I've read your question and the responses multiple times, but it seems the answers don't fit the question. Did you ever get a satisfactory response? In my case, there is no entry in any box except #8 and #10. I'm just wondering if you got your question answered/problem solved?
I have the same question/issue. I only have entries in boxes 6, 10 and 11. I get an error message from Turbo tax telling me that "the bond premium adjustment of 9.18 reported on this Form 1099-OID is greater than the interest income reported in Box 2 on this 1099-OID of 0.00. You must reduce the bond premium amount reported on this 1099-OID to the amount of the interest income, and report any excess on Schedule A (subjiect to any required limitations). " Does that mean I am supposed to enter 0 in box 10, even though my 1099-0ID has this amount as 9.18? And where on schedule A am I to report the "excess"?
If this is the proper thing to do, why doesn't TurboTax do this for me?
I am using TurboTax Deluxe.
Thanks!
The response I got was quite unhelpful — one really needs to speak with someone. I gave up asking, checked the IRS page which was a bunch of “legalese” which provided very little assistance. I too use Turbo Tax Deluxe and they should provide more details and examples to help. Ended up putting the info also on an 1099-int sheet.
Thanks for your reply jhorizonte! I will try replying directly to Wendy the tax expert and hope for some more clarification...
Hello Wendy,
I wonder if you can give some clarification. I did type in the numbers myself for my 1099-OID.
I only have entries for boxes 6, 10 and 11. However, after typing in the numbers exactly, I keep getting an error message from Turbo tax telling me that "the bond premium adjustment of 9.18 reported on this Form 1099-OID is greater than the interest income reported in Box 2 on this 1099-OID of 0.00. You must reduce the bond premium amount reported on this 1099-OID to the amount of the interest income, and report any excess on Schedule A (subjiect to any required limitations). " Does that mean I am supposed to enter 0 in box 10, even though my 1099-0ID has this amount as 9.18? And where on schedule A am I to report the "excess"?
If this is the proper thing to do, why doesn't TurboTax do this for me?
I am using TurboTax Deluxe.
Thank you.
By the way, I can get rid of the error by changing the amount in box 10 to zero, as box 2 is zero I suppose. But this seems wrong to enter something different than what is on the actual 1099-OID. Also, I don't have a schedule A as I will take the standard deduction. If I understand things correctly, the entry on schedule A would be a deduction, so not entering anything won't change my taxes one bit, but this just seems like an incorrect solution, to be told to change the amount in box 10 that is actually on my 1099-OID. Feels like a TurboTax error.
Thoughts?
Agreed. I do NOT understand why we were told to put it on Sch A, since Sch A is for deductions and like you, I will use the standard deduction. I also agree that this feels like an error by TurboTax. I’ve done exactly what the program told me to do, but then it gives me an error message. Something’s wrong somewhere and I believe it’s on TurboTax. Or possibly by the investment company that issued the composite 1099.
I don’t really know whether the $16 Bond Premium in box 10 of the 1099‑OID is income or not. BUT – to work around the error that TurboTax thinks I’ve made, I moved the $16 to Box 2 and called it “regular interest” because I don’t know if it’s tax free or not. That information is not on the 1099-OID, so I just made a guess. $16 is not going to affect my taxes, one way or the other, but I assume it’s income and that means it should be reflected somewhere, somehow, on the tax return. Omitting it entirely certainly will not trigger an audit, but I just feel better about including it.
As you said, this seems like an incorrect solution. I will await further feedback from TurboTax. Or whomever...
I have the same issue: tax-exempt bond with #s on 1099-OID line 10/11. I ran some tests with TT2020. Entering $$ on 1099-OID:
line 2: increases tax-exempt interest
line 10: reduces tax-exempt interest
line 11: increases tax-exempt interest
None seem to affect tax liability
So, much hunch is that tax-exempt interest on 1099-INT line 8 should instead be entered only on 1099-OID line 2. Then by entering the premium amount on line 10, the net reported tax-exempt interest will be reduced.
I think the reason to do this is so that if the bond is sold, lower reported interest could reduce capital gains. But I am not sure how that would be calculated, or if Turbo Tax retains that information for future use. I don't see how it can since the reported interest is not tied to an individual bond. So it would seem that the OID reported interest must be manually tracked and used to adjust the basis when the bond is sold.
Note: I am not a tax professional and this is only experimental reporting. Hopefully a qualified representative can respond and advise.
One additional point: Because 1099-OID line 2 increases reported interest, for a tax-exempt bond I think the interest should be reported as tax-exempt
Have you noticed that we're not getting any response from TT, to say nothing of definitive guidance or information?
I agree that putting numbers where then 1099-0ID has none feels like the wrong thing to do. There are 2 or 3 creative possibilities, but none of them feel right.
I think part of my problem is that my composite 1099 is silent on the whether the bond premium in box 10 is taxable or not. I plan to call the issuer of the 1099 tomorrow, but I'm not really expecting a definitive answer. Instead of putting numbers where there are no numbers, I'd almost be more comfortable in simply omitting the small amount in box 10 entirely.
Your thoughts?
Based on the earlier comments from tax professionals, I do not that the the bond premium is taxable.
Actually I found several other articles and I think the better approach is to NOT enter the premium on 1099-OID, but instead subtract it from exempt interest on 1099-B. Taxslayer says to do this:
And an older post on TurboTax:
It seems like the 1099-B and 1099-OID forms in TT are not handling this automatically, hence the manual process suggested in the posts.
I’ve just made a small discovery. As it happens, I have a competing tax program comparable to TT Dlx, so I tried this little exercise on it. All I did was create a return and then entered the amounts from box 8 and box 10. No problem. It did NOT demand that I reduce the bond premium in box 10 to the amount (which is zero) in box 2. Knowing that, I feel more comfortable in merely not reporting the small amount in box 10.
I also would be most comfortable omitting the amt in box 10 (or reducing to the amount in box 2, if any), rather than entering something in box 2 that is not the case. My understanding is that the bond premium is something that would lower your taxes, if you had any taxable interest. That's why they tell you to enter it on schedule A instead. If you are itemizing. I just don't understand why, if this is the proper thing to do, that TurboTax doesn't do this step for you, or explain it to you right there as you are entering the 1099-OID. Seems like quite a flaw and many of us are uncomfortable about how the "error" is managed and it is quite confusing.
Thank you! I couldn't get to the Taxslayer link, but was able to bring up the TT link
"Should i recognize a bond premium amortization on tax exempt interest bonds? and if so where?" I'll have to read it through another time, but that looks interesting. I do recall, when you enter the 1099-OID there's a question about whether any of these not usual circumstances apply, and I think ABP adjustment might have been one of them. Hmmmm. Or maybe I saw ABP adjustment somewhere else, I don't know for sure.
What did the software report for total tax-exempt interest? Did it reduce the total by the bond premium amount?
I created a spreadsheet and calculated accrued values and interest on a bond. I don't think the premium is taxable on a municipal bond and I don't think it has an impact unless you sell the bond prior to maturity. If you purchase a bond after issue at a premium (higher cost, lower current interest rate), then the accrued value based on the original price and rate aren't valid. Since your effective interest is lower than the original rate, you can use that difference (premium) to reduce a taxable gain if you sell the bond before maturity. By reporting the lower exempt interest on a return, you are creating a record of the premium.
However, I don't think the tax software will help if you sell the bond. I am creating a separate spreadsheet for such bonds, tracking the 1099 data. If a bond is sold, I can then hopefully calculate the reduced gain. If the IRS questions the gain, then the tax return reporting may be helpful to document the reduced gain. Holding the bond to maturity should avoid this issue.
In the spreadsheet I created there was still a taxable gain after applying the calculated premium (scenario 5). I"m not sure if this is correct or and artifact of the simplified calculations. In an ideal world with stable interest rates, I would think that the premium would wash out the gain.
On the flip side, if a zero coupon municipal bond is purchased at a discount (lower price, higher interest rates), then tax on that discount will be owed when it is sold or matured.
I found these articles helpful:
NOTE: I am not a tax professional. Do not rely on any of this information - do your own due diligence!
Hi all, I have the exact same issue, and have spent over 3 hours on the phone with Turbo Tax over the last three days and they have been ABSOLUTELY NO HELP! They took screen shots twice, and supposedly escalated, but all I got back was a regurgitation of the question that I originally asked. I tried to get them to explain where on Schedule A they thought I should make the offsetting entry, but they would not answer this question.
Very angry and disappointed with the support from Turbo Tax. Also, it seems from the community that this was an issue for 2019 tax year as well. So they have not done anything to fix it for 2020 tax year.
We should not have to fudge the entries we receive from 1099 documents to fix a problem that Turbo Tax has created.
I agree. However, the most important lesson for me is that we need to separately track and 1099-OID data for future use, it may affect capital gains and taxes in the future. Even if TurboTax handled the form correctly, external tracking is required to document changes in the basis, etc.
This is the nonsense that takes so long to resolve in TT. I only have box 11 OID not box 2 and couldn't get rid of the error on box 10. Even leaving it blank and doing a manual adjustment as "bond premium" then triggers some other complaint that box 10 is empty. In the end I just left box 10 blank and did an 'other' adjustment to reduce the OID. It doesn't matter anyway on Fed taxes and will have a small impact on State. It's just a massive time suck in TT resolving these dumb errors and there is no helpful help on this field indicating why it's in error.