Accrued interest bug 2024

[kdk2]

TurboTax Premier 2024.  My brokerage report correctly reports my interest income, but TurboTax incorrectly adds the accrued interest which is not taxable.  It is not there on Form 1099-B but is there (itemized) on Form B and is included on Form 1040.  I cannot edit it away.  

[ThomasM125]

You may need to delete the Form 1099-B that you downloaded and then enter it in manually.

[kdk2]

I tried that but the bad information is still there on Form B

[kdk2]

Thank you for your response but that doesn't work.  The information about the accrued interest is still there as income.

[KeshaH]

If you'd like, we can look at your return and see exactly what you see to  help come to a resolution. The return will be scrubbed and won't include any of your personal details.

If you're using TurboTax Online:

Once you're logged in to your account,

- on the left hand panel, click on Tax Tools and then choose Tools

- on the pop up window, select Share my file with Agent

- you'll see a message saying you'll give us a copy of your tax return. Your personal information will be changed so we can't see any private information.

- click okay and you'll get another message with a token

If you're using TurboTax Desktop:

• Click on Online in the top menu of TurboTax Desktop for Windows
• Select 'Send Tax File to Agent'
• Write down or send an image of your token number and state then place in this issue.
• We can then review your exact scenario for a solution

Please reply to this message with your token so that we can further assist you. Let us know all the states, if any, that are included on the return.

[kdk2]

I think your instructions are for Microsoft desktop.  I have a Mac

[baldietax]

are you referring to "Accrued Market Discount" in Box 1f on your 1099-B, for example on a discounted Treasury Note or Muni?  This is taxable as ordinary income and will transfer to your Schedule B.  Even on a Muni if you purchase it at a discount greater than the "deminus" amount (0.25% per year til maturity) this AMD is taxable not tax-exempt.

[kdk2]

My 1099-B reports an amount "taxable accrued interest paid", which is reported as an adjustment on TurboTax schedule B-INT.  The item I'm writing about is not the same.  My brokerage statement reports informational items which are not reported to the IRS.  For treasury bonds it reports treasury interest including market discount and treasury accrued interest paid.  I downloaded the full statement to TurboTax and TurboTax transferred the discounts as taxable items to schedule B (but not to schedule B-INT or to the worksheet) 

I can handle the problem by adding the discount amounts to the adjustment, but that doesn't seem right.

[AmyC]

Since your paperwork 1099-B,  shows taxable accrued interest from a sale, the amount  would be used to adjust / increase the taxable interest.

• The buyer of a bond will deduct accrued interest for the bond purchased. 
• A seller would add the interest as an adjustment.

[kdk2]

Thank you for responding.  I posted twice and just replied to a reply to the other post, so here it is.

I will try to be clearer.  The 1099 from my brokerage (Robert W Baird Inc) in the section headed 2024 1099-INT reports interest income, interest on US treasury bonds and obligations, and tax exempt interest.  They also report bond premium (covered lots).

In another section not reported to the IRS they report taxable accrued interest paid.

These amounts are all transferred correctly to TurboTax Form1099-INT worksheet.

However, TurboTax Schedule B is different.  Additional interest from 5 Treasury notes are listed individually as accrued market discount.  Where did these come from?  Each of these notes is in the broker report with the interest as is reported on the 1099-INT, not these new amounts.  The amounts on the Schedule B do not match anything.

Of note, the broker report gives a summary of information not reported to the IRS.  In this part, a market discount is reported which matches the total of the mystery interest amounts.  The broker report does not list this as taxable in their 1099-INT.  The individual amounts in TurboTax schedule B are not in the broker report, so where did TurboTax get them?

[baldietax]

From what you describe I assume you purchased Treasury Notes at a discount which will pay you coupon interest (possibly adjusted for accrued interest paid at acquisition), which all gets reported on 1099-INT.  

Separately, the 'discount' on those notes results in 'accrued market discount' at disposition not a gain/loss, which like all bonds is reportable as interest on Schedule B but will not have a 1099-INT.

The combination of these two is what gives you the total yield on the Notes (e.g. 10k par of 2.5% Notes purchased at price of 98 maturing in 12 months will yield $250 in 1099-INT income and $200 in AMD)

In your 1099-B from the broker you should have a list of sales/redemptions for these Notes which will have these amounts reported in Box 1f?  That should part of the section reported to the IRS (short/long term covered sales etc) not in some memo pages at the back tho.  These AMD amounts should correspond to the discount you purchased the bonds at, and after the AMD adjustment you should zero gain/loss in your 1099-B on these.

[kdk2]

Thank you so much. I will manually add in the AMD - or I think that’s what I should do. 

I really appreciate your careful reply. 

[baldietax]

no problem but from what you describe I am not sure you need to manually do anything - pls check in all the forms - if you're seeing the AMD hit Schedule B on the "Accrued Interest" line then it's already in your income; conversely on your Schedule D / Form 8949 you should see gain/loss adjusted to $0 on the Notes.

[pbtaxpayer]

yes the desktop turbo tax deluxe had a bug. It did not allow you  to deduct  accrued interest paid at purchase of securities on schedule B.  I deleted the downloaded 1099 int yesterday - updated TurboTax and again downloaded the 1099 int.  Then I was able to deduct the accrued interest paid from sch B by clicking on the downloaded entry and boxes came up asking if any of these entries need adjustment. 
turbo tax should have notified users of the bug and told us they were working on a fix

[SteamTrain]

@pbtaxpayer 

OK...that is "almost" the way to do if for accrued interest you PAID to the seller when you bought the bond in 2024.

(Now, I don't think this applies to Treasure Zero's, I don't know how to treat those..)

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BUT for regular, Corporate, or Treasury Bonds/Notes, and Munis?

IF your 1099-INT has a combination of box1, 3, and 8 $$  reported on it, and you enter the accrued interest you paid on the follow-up page?   Then the $$ are improperly applied proportionately against the $$ in boxes 1, 3, and 8.

Thus, for any year you buy a bond or MUNI, and pay accrued interest with the purchase, you must manually break up that 1099-INT into Up-To 3 separate 1099-INT forms.

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.

_____________________________

A complication to all that is that IF the bond you bought in 2024, does not actually pay out interest to YOU in 2024...then you have to wait until 2025 taxes to report the accrued interest you paid out to buy that bond.  i.e. you are only supposed to offset the accrued interest you paid for the bond, in the year you actually get some interest from it.   (buy a Muni in Nov of 2024..pays interest to you in say Feb of 2025....you offset that with your 2025 tax filing).  I use a spreadsheet to keep track of which year I cand declare the accrued inters I paid.

______________________

Someday...I hopelessly pray...that someday, on the follow-up page where the software asks about the accrued interest you paid...that they (TTX software folks) will provide 3 separate lines...one for Corporate bond purchased, one for Treasuries, and one for Muni's, so that we don't have to be messing with the separate 1099-INT forms.