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If adjustments for bond premiums are not reflected on your 1099-INT, you can manually enter the bond premium adjustment in the 1099-INT section of TurboTax.
This is also where you can report any accrued interest paid.
Follow these steps to make a manual adjustment for the bond premium you paid on your tax-exempt and taxable bonds:
- Select Federal Taxes
- Under Wages & Income select Interest on 1099-INT
- Enter your 1099-INT information, select Continue
- Select I need to adjust the taxable amount, select Continue
- Enter the state that pays your tax-exempt interest, select Continue
- Enter the amount of your premium adjustment (use a negative number if you need to add to the interest reported)
- Select the Reason for Adjustment
Box 12 Bond Premium on U.S. Treasury Obligations shows the bond premium for the year for covered U.S Treasury securities. This amount reduces taxable interest and is notated "ABP Adjustment" on Schedule B. Box 13 Bond Premium on Tax-Exempt Bond shows the bond premium for the year for covered non-taxable securities.
Interest from corporate bonds and U.S. Treasury bonds interest is typically taxable at the federal level. U.S. Treasuries are exempt from state and local income taxes. Most interest income earned on municipal bonds is exempt from federal income taxes.
For taxable bonds, IRS Publication 550 states "Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Under your last entry on line 1, put a subtotal of all interest listed on line 1. Below this subtotal, print "ABP Adjustment," and the total interest you received. Subtract this amount from the subtotal, and enter the result on line 2.
Bond premium amortization more than interest.
If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28.
But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Any amount you can't deduct because of this limit can be carried forward to the next accrual period.
Some additional information on Bonds:
How are bonds taxed?
Bonds are typically taxed in two ways: when you earn interest on the bond and any capital gain on the sale.
Tax on interest
When you earn interest, the IRS expects you to report that income on your tax return. Whether or not that income is taxable depends on the type of bond you invest in.
- The interest you earn on corporate bonds is generally always taxable.
- Most all interest income earned on municipal bonds is exempt from federal income taxes. When you buy muni bonds issued by the state where you file state taxes, the interest you earn is usually also exempt from state income taxes. If you buy municipal bonds issued by another state, you'll still typically avoid federal taxes, but you'll likely be subject to state (and possibly local) income taxes.
- U.S. Treasuries are exempt from state and local income taxes but are taxable at the federal level.
After the end of the tax year, your financial institution or the bond issuer should send you a Form 1099-INT reporting all the taxable and tax-exempt interest you received during the year.
Typically, interest from corporate bonds will be in Box 1, interest from U.S. Treasuries will be in Box 3, and tax-exempt interest from muni bonds will be in Box 8.
Even if you don't have to pay income tax on the interest, you still need to include it on your tax return. That's because, while some bond interest is tax-exempt, the IRS still includes it in some calculations.
Tax on capital gains
If you buy a bond when it is issued and hold it until maturity, you generally won't have a capital gain or loss. However, if you sell the bond before its maturity date for more than you paid for it, you'll typically have a capital gain. If you sell it for less than you paid for it, you'll usually have a capital loss.
After the end of the tax year, your financial institution will send you a Form 1099-B reporting any bond sales that took place during the year.
TurboTax has you covered
Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you. Backed by our Full Service Guarantee.
You can also file taxes on your own with TurboTax Premium. We’ll search over 500 deductions and credits so you don’t miss a thing.
If adjustments for bond premiums are not reflected on your 1099-INT, you can manually enter the bond premium adjustment in the 1099-INT section of TurboTax.
This is also where you can report any accrued interest paid.
Follow these steps to make a manual adjustment for the bond premium you paid on your tax-exempt and taxable bonds:
- Select Federal Taxes
- Under Wages & Income select Interest on 1099-INT
- Enter your 1099-INT information, select Continue
- Select I need to adjust the taxable amount, select Continue
- Enter the state that pays your tax-exempt interest, select Continue
- Enter the amount of your premium adjustment (use a negative number if you need to add to the interest reported)
- Select the Reason for Adjustment
Box 12 Bond Premium on U.S. Treasury Obligations shows the bond premium for the year for covered U.S Treasury securities. This amount reduces taxable interest and is notated "ABP Adjustment" on Schedule B. Box 13 Bond Premium on Tax-Exempt Bond shows the bond premium for the year for covered non-taxable securities.
Interest from corporate bonds and U.S. Treasury bonds interest is typically taxable at the federal level. U.S. Treasuries are exempt from state and local income taxes. Most interest income earned on municipal bonds is exempt from federal income taxes.
For taxable bonds, IRS Publication 550 states "Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Under your last entry on line 1, put a subtotal of all interest listed on line 1. Below this subtotal, print "ABP Adjustment," and the total interest you received. Subtract this amount from the subtotal, and enter the result on line 2.
Bond premium amortization more than interest.
If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28.
But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Any amount you can't deduct because of this limit can be carried forward to the next accrual period.
Some additional information on Bonds:
How are bonds taxed?
Bonds are typically taxed in two ways: when you earn interest on the bond and any capital gain on the sale.
Tax on interest
When you earn interest, the IRS expects you to report that income on your tax return. Whether or not that income is taxable depends on the type of bond you invest in.
- The interest you earn on corporate bonds is generally always taxable.
- Most all interest income earned on municipal bonds is exempt from federal income taxes. When you buy muni bonds issued by the state where you file state taxes, the interest you earn is usually also exempt from state income taxes. If you buy municipal bonds issued by another state, you'll still typically avoid federal taxes, but you'll likely be subject to state (and possibly local) income taxes.
- U.S. Treasuries are exempt from state and local income taxes but are taxable at the federal level.
After the end of the tax year, your financial institution or the bond issuer should send you a Form 1099-INT reporting all the taxable and tax-exempt interest you received during the year.
Typically, interest from corporate bonds will be in Box 1, interest from U.S. Treasuries will be in Box 3, and tax-exempt interest from muni bonds will be in Box 8.
Even if you don't have to pay income tax on the interest, you still need to include it on your tax return. That's because, while some bond interest is tax-exempt, the IRS still includes it in some calculations.
Tax on capital gains
If you buy a bond when it is issued and hold it until maturity, you generally won't have a capital gain or loss. However, if you sell the bond before its maturity date for more than you paid for it, you'll typically have a capital gain. If you sell it for less than you paid for it, you'll usually have a capital loss.
After the end of the tax year, your financial institution will send you a Form 1099-B reporting any bond sales that took place during the year.
TurboTax has you covered
Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you. Backed by our Full Service Guarantee.
You can also file taxes on your own with TurboTax Premium. We’ll search over 500 deductions and credits so you don’t miss a thing.
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