fidelity reported income from treasury bill with accrued coupon interest that matured as capital gain not interest income

[ThomasM125]

The income from a treasury bond held to maturity is likely not capital gain income. I suggest you contact Fidelity and ask for clarification on why it was reported as such. Also, it is common for revised 1099 forms to be issued by larger brokers like Fidelity, so they be aware of the situation and may suggest that you wait for a corrected reporting form.

[ron6612]

Hello, I called Fidelity and they told me that since the note was not zero coupon but had a stated accrued interest, it was purchased at a discount and should be reported as a short term capital gain.  The problem in a nutshell is that if it was reported as treasury income there would be no tax to the state of Maryland.  I could change the turbotax from capital gain to interest income but not sure if that is the way to handle this??

[baldietax]

few things going on here

1. Your 1099-B should reflect Accrued Market Discount (the discount on the purchase, nothing to do with the coupon interest earned or accrued) in Box 1f as an adjustment which offsets the capital gain to zero and will carry over to your Schedule B as interest income.  If you don't have anything in Box 1f that's a question for Fidelity.  Oddly I did get a 1099-B from Treasury Direct which indicated adjustment code D for AMD but had zero for the AMD.

2. If you put this into TT as a sales summary the adjustment code will probably trigger the need to mail in the 1099-B with some other form.  To avoid this, enter these items with adjustment codes (Wash Sale, AMD etc) as "one by one" with the details which will go on 8949 and subtract those amounts from the sales summary so your Schedule D is whole.

3. There is nowhere to designate this AMD as US Government obligation and it will not deduct from your state taxes automatically.  This is a problem/gap across the board and there are various ambiguities and interpretations of the tax code as to whether this AMD qualifies for state exemption.  If this is exempt in your state, the only way I've seen in the threads to take the exemption is to make a miscellaneous subtraction on your state taxes with explanation.  For some states this also precludes e-file.

Some of the many threads on this topics

https://ttlc.intuit.com/community/taxes/discussion/re-accrued-market-discount-on-treasury-bond-ny-st...

https://ttlc.intuit.com/community/taxes/discussion/re-i-bought-trsy-notes-at-a-discount-my-broker-s-...

https://ttlc.intuit.com/community/taxes/discussion/re-accrued-market-discount-on-treasury-bonds-stat...

etc

4. separately, you should also have a 1099-INT for the coupon interest paid to you, and the accrued coupon interest you paid on purchase can be entered as an adjustment on the 1099-INT which deducts from the coupon interest.

Not a CPA/Expert so do not consider as tax advice; just my 2 cents on how to handle T-Notes.