How does one enter accrued interest paid on taxable bonds when it exceeds interest income

[shg]

Interest income will occur next year so accrued interest income paid this year exceeds it and Turbo tax won't let me enter
what about the same thing on tax-free bonds where it usually goes to be an offset on state income taxes?

[SteamTrain]

You can't....and you are not supposed to enter it this year.  Accrued interest cannot exceed the interest distributed.

But an example:   If you buy any type bond in 2018 that has accrued interest as part of its purchase price...and IF that bond does not pay it's first interest payout to you until 2019...then you have to wait until your 2019 taxes to enter that accrued interest value to offset the interest that will be reported then.
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And then all the complications
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...........another issue potential accrued interest issue...if your 1099-INT is a mix of box 1, 3, and 8 in any combination. Then the all the bond interest for that  bond type  should be removed from that 1099-INT and entered on its own 1099-INT.  (not needed if you have no accrued interest to report on any of them)

Example:  You bought a Treasury bond with accrued interest that you can report for 2018. The Treasury bond interest is reported in box 3,  but that 1099-INT also has box 1 and box 8 $$ on it.  You remove all of the box 3 $$ (and box 12, if any) and put box 3 (plus 12) on it's own 1099-INT before indicating it's accrued interest.  IF you don't, the accrued interest will be divided up proportionately (and improperly)  among boxes 1, 3, and 8

same thing goes for box 1( and 11) bond interest, and box 8 (and 13) bond interest.  (Boxes 1&11, and 3&12, and 8&13 always go together)
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Special situations For tax free bonds (box 8&13) & accrued interest
  
a) If you are reporting accrued interest for one or more Muni-bonds you have , and are designating it all as "More than one state"...then all of box 8&13,and  the accrued interest for any of those bonds can go on the one break-out 1099-INT form.

b) If you have your own states's bonds (and US Territory bonds) mixed in with other state's bonds, and you want to break out your own state's bond interest so that it does not get taxed by your own state...then you have to do yet another break-out into two more separate 1099-INT forms.
...... i)  All the other state's bonds box 8&13 on one 1099-INT form and it's own accrued interest (if any). and
.......ii) all of your own state's bonds, and any US territories box 8 &13 values....and any accrued interest for those .

Yep, need good supplemental information from the broker for these.

[shg]

are you addressing accrued interest PAID as opposed to earned?  The 1099 shows the accrued int paid in 2018 - understand that 1099 income will show next year- but since the amount paid- occurred in 2018 can one really wait until 2019 to deduct it from interest income received since it was paid in 2018?

[SteamTrain]

Whoever you bought the bond from, gets a 1099-INT showing the interest paid to them up until the time you bought it.  But if the bond you bought doesn't pay it's first interest payment "To You" until the next year...then you cannot report & subtract the accrued interest you paid to the seller until the next year's tax return

1)....say you bought a bond that pays out interest in Feb and Aug....But you bought it in November of 2018...you have to pay the seller the Aug-Nov accrued interest.  You won't get any 1099-INT for that particular bond since you get no interest paid..to you...until Feb  2019, at which time you will get a full 6 months interest added to your 2019 1099-INT (and again in August).  So you will report the accrued interest you paid to the seller when you prepare your 2019 taxes in 2020.

2)  Most bonds pay out interest either semi-annually or monthly, So if one bought a monthly or semi-annual-paying bond in time such that the bond will actually issue a payment "To You" before Dec 31 of the same year...then you can report the accrued interest you paid the seller for that same year's taxes, because you will get a 1099-INT for that interest pay-out that YOU received for that same year.

[4SSparky]

If you add to an existing bond position of the exact same bond issue and the new position has no interest for the year but the existing position has sufficient interest to cover the accrued interest on the new purchase can you apply it?

[SteamTrain]

@4SSparky 

My knee jerk reaction would be that you have to wait until the year you get the first interest payment from that new bond purchase position.  Pretty sure each purchase would have to be dealt with separately, at least for that particular purpose.

But I can't immediately point to any publication rules which deal with that specifically.  

Maybe someone else has better knowledge, or a reference.

[4SSparky]

Thanks for taking a swing at it. I have the same impression but nothing clearcut from the IRS that I can find. Appreciate the input though.