"Accrued market discount" on 1099-B treated differently on 'forms view' vs. 'Step by Step'.

[selfprepper]

I use the forms view exclusively. I have a few transactions (mostly treasury notes) where the 1099-B has an adjustment for "Accrued market discount". My understanding is that the amount of Discount should lower my capital gain, and increase my Interest income. In other words it's shuttled out of the Schedule D and into the Schedule B.

When I enter the Discount in the capital asset sales worksheet in Forms View, it actually increases my capital gain by the amount of the Discount instead of decreasing it. There is no entry on schedule B. As such, I am picking up 2x the income. 

I tried testing this with a simple dummy transaction of a sale with $1,000 in proceeds and $0 in cost basis. Then I entered an Accrued Market Discount adjustment (Code D). I would expect the capital gain to be 0 and the interest income to be $1,000. Instead, I get a capital gain of $2000.

Then....I deleted the dummy transaction and switched to Step By Step mode and re-entered the transaction and it handled as expected - Capital Gain of $0 and an entry for "Accrued market interest" in Schedule B for $1,000.

Why is this happening?

Thx!!!

[rjs]

Entering investment sales in forms mode is very complicated and error-prone. TurboTax strongly recommends using the Step-by-Step interview to enter investment sales. As you have seen, the interview is very clear and straightforward, and produces the correct results.

If you look closely at the forms that TurboTax produces when you enter the sale in Step-by-Step mode, you will see that the adjustment for accrued market discount is not entered on the Capital Asset Sales Worksheet. It has to be entered on a Capital Gain (Loss) Adjustments Worksheet for the sale. In the Capital Asset Sales Worksheet, when you click on the space for Adjustment Code(s) or Adjustment Amount, notice that a little magnifying glass icon appears on the left. Clicking on that magnifying glass will QuickZoom to an existing Capital Gain (Loss) Adjustments Worksheet if there is one, or prompt you to create one. In Part III of the Capital Gain (Loss) Adjustments Worksheet there is a specific line for accrued market discount.

Obviously it's a lot easier and more reliable to enter the sale in the Step-by-Step interview.

[selfprepper]

This is an incredibly accurate and informative response. Much thanks!

I never realized the preferred entry method was step by step. I've been using forms mode exclusively for almost 20 years. 

[rfisher71]

I have the opposite problem in TT2024. I entered in the Accrued Market Discount from my 1099-B  in the Step by Step but the amount of the Accrued Market Discount doesn't show up in my interest income in Schedule B (which means I am underpaying). Also I have some wash sales in the total adjustment and the step by step doesn't ask how the adjustment was split. So I don't see how it will get the correct information anyway.

Any suggestions on how to get the Accrued Market Discount to automatically show up in Schedule B?

[rfisher71]

This is an update to my comment. I deleted my step by step entries and re-entered them. Then I went to forms view and searched for "errors". It took me to "Capital Gain and Loss Worksheet" Part IV, "Accrued Interest to Schedule B". There I entered the amount of "Accrued Market Discount" and then the income was put into Schedule B.

So all is well.

[DaveF1006]

Yes, there is a suggestion. When you recorded your 1099 INT, you would have needed to record an amount of your market discount in Box 10 of the 1099 INT. After you completed recording your entries on the 1099 INT, there is a follow-up screen that says "Let's see if the market discount affects your interest". Here you will select the link to IRS Publication 550 to see if your discount is taxable or not. If you determine it is taxable, you would adjust Box 3 in this section by the amount of the market discount. 

This will not show up as a separate entry on Schedule B but it does add to your taxable interest amount. As an FYI, Box 10 does not initially appear in your 1099 INT but you will check the box that mentions My Form has info in other boxes. Then Box 10 will appear and this is where you report your accrued market interest. If you report an amount in this Box, he following screen will appear to adjust your taxable interest.

[SilentC]

I tried this (what rfisher71 did) but it is still showing the accrued market discount from my 1099-B increasing my capital gain AND the accrued market discount, after entering the number in error mode as you did, increases my interest expense too.  Was this not an issue for you?  

Edit - I think making the adjustment directly to the capital gain loss sheet as rjs's post showed is a way to do this, but I hate to have to go out of "step-by-step" mode to do this, it makes me scared of where else I could be double paying in step by step and not realizing it...

[SilentC]

DaveF1006, is this a work around?  I have zero in Box 10 of my 1099 INT, my accrued market discount is on 1099B.  I tried just entering it in box 10 of 1099-1NT and not in gains/losses and it did not appear to change my interest income.  Thanks

[selfprepper]

Here is how I'm handling Market discounts in the 2024 version. For better or worse I do everything in forms view. 

I enter the Capital adj worksheet from the Capital asset sales as per RJS's instructions above. There is a special place in Part III of that worksheet to enter the Market Discount. It does not work, I don't know why. What I do is enter a manual adjustment in Part II of the worksheet, "adjustment code" is "D" and I enter the Accrued Mkt Discount as a negative number. This decreases the gain the gain (or increases the loss) by that amount. Then, on the bottom of the worksheet there is a Part IV and a line for "accred interest to Sch B" where I enter the amount as a positive number. This seems to work.

[baldietax]

Hi reading these posts things seem to be getting messy.  The simplest way to enter Notes with AMD is as "one by one" with the details rather than trying to do sales summary adjustments, and use Step by Step as Forms mode is very fiddly for 1099-B, even tho the navigation sucks.  I've put in about 20 of these without issue on Schedule D and Schedule B, and nothing to mail to IRS.

[rfisher71]

I just checked my worksheets and that is how mine worked also. As I noted these fields came up automatically when I went to forms view and checked for errors. I did this procedure (switching to forms view and checking for errors) based upon another post but unfortunately I did not save that post as a bookmark.

[rfisher71]

I just checked my return and worksheets and this procedure is how I did my 2024 tax return also. These fields (in Part II and Part III) came up automatically when I switched to forms view and checked for errors. I followed the procedure of switching to forms view from another post but unfortunately I did not bookmark that post. 

[SilentC]

Thank you everyone for the super helpful replies.  I ended up taking an hour to do one by one and it looks right and my liability actually went down another $400, which is what I expected based on the feedback of providing a negative number to adjust cost basis for cap gains purpose (I had just zeroed the adjustment).  Mo money mo problems I guess.