Confusion about OID bonds and taxes

[mdsttuser]

In 2014 I purchased an OID bond.  The bond had an interest rate of 2.5% and was a 5 year bond.  From 2014 to 2019 I have received 1099-OID forms, which I entered in TurboTax when I did my taxes.  In 2019 the bond matured and I received both a 1099-OID and a 1099-B form for the bond (the latter because the bond was purchased during or after 2014).   I had assumed that by entering my 1099-OIDs for the last 5 years that the tax on the bond would have been paid prior to maturity, but receipt of the 1099-B reporting net proceeds makes me think otherwise.  I think I need to enter both the 1099-OID and 1099-B, but I'm not sure.  I guess I am hoping someone can explain what I am missing and how I enter this correctly to ensure I don't over pay the taxes on this bond.  Is the 1099-B to pay taxes on the interest earned above and beyond the taxes already paid on the original issue discounted rate?  Thanks in advance.

[MarilynG1 · Accepted solution]

Yes, you are correct!  The 1099-OID was to report the tax-exempt interest earned (but not received) for your bond. 

The 1099-B reports the taxable discount (now received) as investment income. 

Click this link for more info on Tax-Exempt Interest. 

[mdsttuser]

Thank you for your quick response!

[papa281]

why does it show that you earned the same interest twice one from a 1099 oid and the other from a 1099 b for the same us treasury bond that you sold on turbo tax

[AbrahamT]

They are two seperate amounts. The interest from an OID is the amount you received as a discount when you purchase a bond or a note. The discount is taxable interest over the life of the bond even if you don't actually receive any interest.

You want to make sure you enter in the OID interest correctly. See HERE. This amount will come from Box 1 of your 1099OID 

The amount you enter from a 1099INT gets entered seperately as follows See HERE. This amount will come from Box 3 of your 1099INT.

Two seperate forms, two seperate amounts. Both are taxed at the federal level but are exempt from NYS tax liability.

[papa281]

Thanks for the reply but my question is: 

Multi 1099 form--This year form 1099-B U.S. Savings Bonds & Treasury Obligations--Gross Proceeds $320,000.00  Cost or other basis  $311,506.00  Money made when Treasury Strip time period ended $8,494.00

Form 1099-INT box 3--Money made on U.S. Savings Bonds & Treasury Obligations              $7,200.00

Form 1099-OID box * OID on U.S. Treasury Obligations                                                                $1,584.04

If I enter the 1099-B info and the 1099- OID amount and the 1099-INT amounts into the program. On the Federal Return I will be counting the money made on the US Treasury Strip Twice, first as capital gains and then as Interest and OID for a total of $17,278.04, when I only made $8,494.00.  Then on the State return the 1099-B amount of $8,494.00 is counted as capital gains income when any monies made on a U.S. Treasury Strip or Bond is supposed to be State tax exempt but the Interest amount and OID amount on the US treasury Strip shows that these two are State tax exempt.  

It seems that the only way to avoid the money made on the US Treasury Strip from being counted twice is to not fill out the 1099-B.  Is that correct?

[DianeW777]

Question: It seems that the only way to avoid the money made on the US Treasury Strip from being counted twice is to not fill out the 1099-B.  Is that correct?

• No, the 1099-OID is reporting the discount you received when the bond was purchased. When you purchase a bond or note at a discount, you'll get Form 1099-OID (Original Issue Discount). The discount is taxable interest over the life of the bond, which gets reported every year you hold the bond, even if you don't actually receive any interest.
• 1099-B is received when the bond is redeemed and the OID that has been reported as income over the holding period time frame is the cost basis for this capital gain transaction. This transaction is both federal and state taxable.
• 1099-INT is the interest earned on the US Treasury bond and is taxable on your federal return, not on the state return. 
  • Where do I enter 1099-OID?
  • Where do I enter 1099-B?
  • Where do I enter 1099-INT?

@papa281