Accrued Market Discount - TurboTax 2022

[bobp55]

For a couple of my bonds, I have Accrued Market Discount. The entry on my 1099-B looks like

Sale Price 10000, Basis 9900, Market Discount 100.

I make these entries into TT with the Market Discount getting entered on the "Any of these less common items" page. Then I need to adjust the basis because the Market Discount is treated like ordinary interest. So on the next page "Select any less common adjustments that apply", there is no choice for "Market Discount". There is only "An adjustment is required for a reason that is not already covered". So I choose that and enter "-100" in the box for the adjustment.  That does adjust the basis to 10000 as I want .

BUT then Form 8949 line 1f gets the code "O" entered into it whereas the correct code should be "D".

What is the proper way to get the basis adjusted so that I get a "D" code in 8949 line 1f?

If there is no "proper" way, can I manually modify the entry on 8949 line 1f before efiling?

PS - I looked back at previous years returns and I see the "D" code in 8949 line 1f.  I can't remember for sure, but maybe TT automatically adjusted for Market Discount. Now it clearly does not. 

Thanks.

[bobp55]

I have found no way to get the code to be "D" using step-by-step. But I can change it to "D" by editing the form.

-switch to forms view

-select the form

-click in the field to select it

-ctrl D

-then edit the field changing "O" to "D".

However, then when I do the check for errors in my return, I get two related to the two places I changed "O" to "D". I also get the error message 

"Transaction code should not be overridden and changed for Electronic Filing. Using an override can prevent the cross-checking that's important to an accurate tax return."

Not an encouraging message to see.

[JulieS]

No, you are confusing two different codes. 

The D code refers to the sales category, the O is an adjustment code. You shouldn't need to override anything. 

See the image below. The box for code D is checked at the top and O shows in box 1f. This is correct based on what you are saying.

[bobp55]

Julie S - That is not the "D" I am referring to.  From the IRS instructions for codes for the (f) column

on form 8949 : 

You received a Form 1099-B (or substitutes statement) showing accrued market discount in box 1f

Then enter this code in column (f)         :   D

It should be "D" not "O".  Turbo Tax used to do this correctly, but in 2022 it does not. "O" is a catch-all if none of the other codes are appropriate, those being  B, T, N, H, D, Q, X, R, W, L, E, S, C, M, Z, Y

https://www.irs.gov/pub/irs-pdf/i8949.pdf

[JulieS]

Yes, you are right, I did misunderstand you. 

On the page "Select any less common adjustments that apply", you don't need to make a choice at all. By selecting "An adjustment is required for a reason that is not already covered", you are overriding your code for accrued market discount. 

If you leave that page blank, you will get your D in 1f. 

[bobp55]

Hi Julie S,

I tried not checking any box on the "Any of these less common items" page. You do get the "D" in box 1f, however the basis does not get adjusted. So then it seems the accrued market discount is getting taxed twice : once as interest (which is correct) and also as a capital gain on the transaction (which is incorrect). 

But I need to look into it more deeply to see exactly what's going on. I'm going to play a little with the values and see what happens. 

[GeorgeM777]

On the screen that precedes Select any less common adjustments that apply, is the screen Any of these less common items and it is here that you can enter your accrued market discount.   After selecting Done, you should see the screen Select any less common adjustments that apply which you referenced in your post.  The last item on that screen should already have a check mark, and the option to adjust your basis should also be there as well.  If you add a positive amount that will increase your gain, and if you enter a negative amount, that will increase your loss.  

You are correct in that all market discount recognized as income, whether currently or when you sell/redeem, will be added to the basis of your bond when you are figuring gain or loss.  If you elect to currently include in income the market discount on a bond, increase the basis of the bond by the market discount that has been included in income for that bond. 

@bobp55 

[bobp55]

GeorgeM777 - I belive I explained all of that above.  Also as I explained, checking the box for the last item on the screen, and entering the adjustment amount results in the code "O" in field 1f of form 8949. That is not the correct code. It should be "D".  The only solution I have found so far is to switch to "forms view" and manually override the "O" and change it to "D" for the specific entries on form 8949. 

The question I am asking is whether anyone has found a way without using a manual form override to adjust the basis and automatically get the "D" code in field 1f. So far no one has. Note that if you don't specifically adjust the basis (by entering the negative amount of market discount), TurboTax does put the "D" in field 1f, and the form actually says it adjusted the basis (showing a gain of 0), but it doesn't actually do it as I see the running tax refund (or owed) amount does not change. Only after making the adjustment, does the tax amount get affected.  I think it's a bug in TT for a situation that they rarely see.

[GeorgeM777]

Yes,  there is a way without having to make a manual entry, and it is consistent with what you described in your last post.   Enter your accrued market discount amount on the appropriate screen.  On the next screen, uncheck the box next to the selection, An adjustment is required for a reason not already covered.  Do not enter any adjustment.  Click Done to finish the section.  

Review your Form 8949.  There should be a "D" in column f.  There should also be an adjustment in column G, which is probably your accrued market discount amount. 

@bobp55 

[bobp55]

GeorgeM777 - This is also what Julie S has said. I am trying it again and will go over my tax return printed copy very carefully, including looking at all the worksheets. Hopefully I get convinced TT is doing it correctly. Otherwise I'll just use the manual override. 

[bobp55]

GeorgeM and JulieS - I am now convinced that you both were correct. Enter the accrued market discount and do not check anything on the next page. The accrued market discount is then treated as ordinary interest and is also added to the basis, thus only taxed as ordinary interest. The D code is present on column 1f of form 8949.

Thank you for your replies and patience. 

[JMFord]

I am seeing a similar concern with how TT Premier is treating Accrued Market discount.

The two cases below seem broken. Any ideas on how to get around this would be appreciated!

Case 1 (Zero Cap Gain with Accrued Market Discount)

Sale Price 28000, Cost Basis 28000, Accrued Market Discount 397.

The Market Discount is properly entered on the "Any of these less common items" page.

Based what is entered in step-by-step on the “Select any less common adjustments” page, TT does the following:

No boxes checked	No Interest reported on Schedule B
“Reason not already covered” box checked, no value entered.	Same
“Reason not already covered” box checked, accrued market discount entered	GOOD - Accrued Market Discount Properly Reported on Schedule B BAD - BOTH CODES DO reported on form 8949 box 1f

Case 2 (Non-zero Cap Gain with Accrued Market Discount)

Sale Price 16003, Cost Basis 15992, Accrued Market Discount 197

The Market Discount is properly entered on the "Any of these less common items" page.

Based what is entered in step-by-step on the “Select any less common adjustments” page, TT does the following:

No boxes checked	Cap Gain properly adjusted to 0 on form 8949, but ONLY Cap Gain (11) reported on Schedule B. (Accrued Market Discount is dropped)
“Reason not already covered” box checked, no value entered.	Same
“Reason not already covered” box checked, accrued market discount entered	BAD - Accrued Market Discount ONLY reported on Schedule B, BAD - Cap Gain still reported on Form 8949. GOOD - ONLY CODE D reported on form 8949 box 1f

[JMFord]

Hi again,

I think I just convinced myself that Case 2 is 100% OK.

I had convinced myself yesterday, all income from a Treasury Note would always be regular income. But,  there is an opportunity for a capital gain (or loss).

So, my question remains.. how can I override the O in the DO code to "fix" Case 1?

Thanks for your consideration! 

[GeorgeM777]

We re-created your Case 1 scenario, and our results were consistent with your experience.  While the accrued marked discount appeared on Schedule B as taxable interest, Form 8949 reflected no gain or loss for the bond; however, Form 8949 also contained Codes D and O in column 1f.   Code D was relevant because the bond included an accrued market discount.  Code O did not appear to be necessary given that the accrued marked discount adjustment had already been explained and there were no other adjustments that needed further explanation.  We were not able to override Code O and remove it from our test return.

Code O requires that the appropriate adjustment be entered in column g, and in our test return TurboTax correctly calculated that adjustment as zero.  Because the cost basis and sale proceeds were the same, and there were no adjustments in column g, the disposition of the bond resulted in neither gain nor loss.

@JMFord 

[JMFord]

Hi GeorgeM777,

Thanks so much for the response. I agree 1000% that using code O should not be necesary.

I think I finally root caused the issue, If you could please take a look at the post below, I'd be ever so grateful!

https://ttlc.intuit.com/community/taxes/discussion/intuit-please-respond-tt-premier-not-populating-a...

Best regards, JMFord

@GeorgeM777