Accrued interest

[Jim H]

I purchased a treasury bill in 2023 and paid accrued interest at the time. I will not receive the first semiannual treasury interest payment until early 2024. Can the accrued interest payment I made in 2023 be deducted from the first interest payment I will receive in 2024?

[SteamTrain · Accepted solution]

@Jim H 

Correct.  That is how it is supposed to be done.

You don' subtract the accrued interest you paid out when buying the bond, until the actual tax year in which you receive the first interest payment from that bond.

Thus, in early 2025, you will enter your 2024 1099-INT for that bond into the software, and then declare the accrued interest at that time to be subtracted.

__________

A word though, about entering that information into the software....if that treasury bond & interest is in a brokerage account, you may receive a 1099-INT that has a mix of various interest in boxes 1, 3, & 8. 

For TTX software, you would need to remove the box 3 $$ and create a separate 1099-INT from that brokerage, with only all of your box 3 $$ in it, then report the accrued interest properly on a follow-up page to that separate 1099-INT.  IF you don't do that, the accrued interest would end up being improperly apportioned among the $$ in boxes 1, 3, &8.

But..IF the Bond(s) are in a Treasury Direct account, then their 1099-INT reports only box 3 $$ on their 1099-INT, and the subsequent reporting of the accrued interest in the software isn't an issue.

_______

I keep a separate spreadsheet each year, where I indicate which purchased bond's accrued interest, I have to wait until the next year to report & subtract.

[Jim H]

Thank you for your concise and focused answer. It really helps.

[SteamTrain]

@Jim H 

One thing I forgot to mention about creating a separate 1099-INT for the box 3 $$ when the 1099-INT from a brokerage contains any $$ in boxes 1 and/or 8 too....

.....when you create the new 1099-INT for the box 3 $$, so that you can report the accrued interest you paid for a Treasury bond....if there are also any $$ in box 12, then those $$ should be moved to the new 1099-INT too. 

The $$ in box 12 (if any there) are reporting amortization of any premiums paid for Treasury bonds, so those $$ will end up getting subtracted from the box 3 values too. Thus they need to be on the same 1099-INT that contains the box 3 $$.

_______

But check your 2024 1099-INT layout and box numbering in 2025 for the subject of each box.  Occasionally, the IRS has been inserting some new boxes in the 1099-INT form, resulting in their re-numbering of some of the boxes, so I can't know that box 12 will be for amortized premiums for Treasury bonds 1.5 years from now.