I am wondering how do I deal with 1099-INT Box 13: Bond Premium on tax-exempt bonds?
I found some answers that I need to adjust the taxable amount and use negative number to offset the amount on 1099 with reason for adjustment as: I amortized a premium I paid on a tax-exempt bond.
However, I saw the 2020 Turbotax has "other deductible expenses" section which I can enter amortized bond premiums, is it the same as manually adjust the taxable income? which method is correct?
Actually, there is not a deduction for the premium you paid for your tax-exempt bonds on your federal return. You are required to amortize the premium each year and this will reduce your basis (what you paid). So when the bond matures, your basis will be the face value of the bond. Generally, there will not be a loss.
For tax-exempt and taxable bonds, this adjustment happens automatically when you enter the amount from Box 13 and Box 11 in the 1099-INT section of TurboTax. The adjustment will reduce your amount of reportable tax-exempt interest on Form 1040, line 8b. For taxable bonds, the adjustment will reflect on Schedule B, Part 1.
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
I think I understand this, finally, although I've been doing this for a number of years. A couple of clarifying questions.
Federal treatment is as you describe above and the amortization of Bond Premiums -which I have- is required and done for me by bond on my Composite 1099. If it is only the premium paid in the specific tax year on bonds purchased in that year (Box 13) which matters, is there any need to entire the year's bond premium amortization (different in amount from box 13) via an adjustment? Is the IRS looking for that number?
Now, looking at the state tax situation, where all out-of-state bonds will now be taxable, shouldn't the accrued interest and purchase premium be applied to each bond individually, so that in-state and out-of-state bonds which will have different tax treatment, all reflect the true net interest earned? I seem to recall being able to do this on a bond-by-bond basis (just as the state-by-state interest is entered) on a previous (perhaps online) version of TurboTax.
In the absence of such individual treatment, are the accrued interest and the bond premium split evenly across all bonds? -or perhaps proportionally by bond interest value or by bond interest value by state?