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stevenlh
New Member

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

I purchased a market-linked CD issued by Wells Fargo several years ago.  The investment has paid roughly $750 each report, reported as accrued OID interest on my 1099-OID.  For the first time this year (i.e., 2016 tax year), a shortfall was also reported on my 1099.  The shortfall was reported as $416.  Indeed the actual payment I received from this security was equal to the difference between the period OID accrual ($750) and the shortfall, that is, the payment was around $333.  

Should I simply enter a negative adjustment in TurboTax for my OID income equal to the reported shortfall amount, thereby reducing my OID income by the shortfall amount?  From what I've researched I think that is the correct thing to do, but the governing IRS publication (1212) is not easy to follow.
1 Best answer

Accepted Solutions
DianeW
Expert Alumni

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

If the OID instrument is not yet mature you should select "I need to adjust the taxable amount", then enter the shortfall as a positive amount. Next, select "This is an original issue discount." TurboTax will reduce the taxable interest amount. (see image attached)

The best way to check your entry is on your tax return by choosing to preview your 1040.  

To use this tool while you are signed into your TurboTax account follow the steps here (desktop).

  1. Select Forms in the upper right
  2. Then select 1040, in the forms tree on the left
  3. Scroll to line 8a to check that the interest is the reduced amount
  4. Select Step-by-Step to return to the interview

Review line 8a, on the 1040 and you will see the net result after your adjustment.

If the OID instrument has matured and been redeemed you should use the instructions below.

The correct procedure is to adjust the basis on the sale.  In other words add all previously taxed income to the cost basis of the bond and then report the sale.

Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Your basis, generally, is your cost increased by the OID you have included in income each year you held it. In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. For a covered security, your broker will report the adjusted basis of the debt instrument to you on Form 1099-B

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6 Replies
DianeW
Expert Alumni

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

If the OID instrument is not yet mature you should select "I need to adjust the taxable amount", then enter the shortfall as a positive amount. Next, select "This is an original issue discount." TurboTax will reduce the taxable interest amount. (see image attached)

The best way to check your entry is on your tax return by choosing to preview your 1040.  

To use this tool while you are signed into your TurboTax account follow the steps here (desktop).

  1. Select Forms in the upper right
  2. Then select 1040, in the forms tree on the left
  3. Scroll to line 8a to check that the interest is the reduced amount
  4. Select Step-by-Step to return to the interview

Review line 8a, on the 1040 and you will see the net result after your adjustment.

If the OID instrument has matured and been redeemed you should use the instructions below.

The correct procedure is to adjust the basis on the sale.  In other words add all previously taxed income to the cost basis of the bond and then report the sale.

Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Your basis, generally, is your cost increased by the OID you have included in income each year you held it. In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. For a covered security, your broker will report the adjusted basis of the debt instrument to you on Form 1099-B

View solution in original post

stevenlh
New Member

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

Perfect, that's what I needed.  Thanks!
DianeW
Expert Alumni

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

My pleasure!
bobowobo
New Member

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

My market-linked CD was set up so that any gain would be paid as part of the redemption.  Well, there was no gain.  The redemption was just the exact original amount I paid.  I paid taxes on OID during the life of the instrument.  So, now, I'd like to use the solution in this thread, i.e. increase the basis on the "sale".  But there's no 1099-B.  Can I just enter all of this on my tax form(s) and not worry about getting a 1099-B?

jhrob
Level 3

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

The market accretion on a non-covered municipal bond is federally tax exempt, so it can not be entered in 8a of 1040. Can I just enter the amount ((market discount accretion on OID bond) as an addition on my state tax?

 

 

DianeW777
Employee Tax Expert

How do I adjust my OID interest income to account for the shortfall reported on my 1099? I had $750 OID accrued interest but a $416 shortfall. How to report on my 1040?

In the federal interview if you do not select your state (TurboTax is looking for where this interest might be exempt because of what state the bond is derived from) the full amount should be taxable on your state.

 

If you have a percentage of earnings from each state (usually provided by your broker), you can make the necessary entries, one for your state and one for all other.  See the image below.

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