How to enter CD "accrued interest" paid to a secondary party via brokerage firm in Turbotax

[agletdave]

Hello.  For certificates of deposit bought through a brokerage firm (in this case - Vanguard):  When you buy a  brokered certificate on the secondary market, sometimes you pay the seller their "accrued interest" at the time you purchase the CD. Vanguard does not subtract this interest payment made to them on my1099INT. I confirmed this with Vanguard. So I see two options in Turbotax:

One option is in the TT interview to modify the 1099INT input information with the "uncommon situations" checkboxes. One of those options for "reason for adjustment" is called "accured interest".  The other option for "reason for adj" is to check box that I received the interest for someone else, a.k.a "I'm a nominee".

Does anyone know what is the correct way to go of those two?  I read something that if you show you're "a nominee", you have to provide the IRS with the other party's information, which of course Vanguard is NEVER going to give you.  So I'm assuming I choose the "accrued interest" reason and leave it at that?  The end result to my refund is the same either way - it subtracts that amount of interest. I suppose a third way would be to change my cost basis that I paid for the CD on the 1099B, since it looks like that is listed as "basis not provided to the IRS" on my 1099B anyways.

[DavidD66 · Accepted solution]

You want to use the adjustment for accrued interest.  If you use the nominee option, you would be expected to send someone a 1099-INT.  Enter the amount of accrued interest you paid as a positive number.  

[scapoor2]

Where, on Form 1040 or any schedule, does this show on the income tax return?

Thanks.

[rjs]

@scapoor2 

The accrued interest is shown on Schedule B in the interest section, below the subtotal for line 1.

[scapoor2]

Thanks.

1. "Schedule B in the interest section, below the subtotal for line 1" reads "Excludable interest on series EE and I U.S. savings bonds issued after 1989". Attach Form 8815" My question pertains to the accrued interest paid on brokered CDs (NOT series EE and I US Savings Bonds). There is no form 8815. Brokerage Tax Reporting Statement statement  reports a line item "Accrued Interest Paid on Purchases".

2. I was referring to the statement " So I'm assuming I choose the "accrued interest" reason and leave it at that?  The end result to my refund is the same either way - it subtracts that amount of interest. I suppose a third way would be to change my cost basis that I paid for the CD on the 1099B, since it looks like that is listed as "basis not provided to the IRS" on my 1099B anyways." in the original (first) message above. 

Thanks for your help.

[scapoor2]

Correction:

Thanks.

1. "Schedule B in the interest section, below the subtotal for line 1" reads "Excludable interest on series EE and I U.S. savings bonds issued after 1989". Attach Form 8815" My question pertains to the accrued interest paid on brokered CDs (NOT series EE and I US Savings Bonds). There is no form 8815. Brokerage Tax Reporting Statement statement  reports a line item "Accrued Interest Paid on Purchases".

2. I was referring to the statement " So I'm assuming I choose the "accrued interest" reason and leave it at that?  The end result to my refund is the same either way - it subtracts that amount of interest. " in the original (first) message above. So, where do I enter it on Schedule B?

Thanks for your help.

[rjs]

@scapoor2 

When you select accrued interest as the reason for the adjustment, TurboTax enters it on Schedule B as shown below. When I said "subtotal" I was referring to the subtotal entry that TurboTax inserts on line 1, not to line 2.

[scapoor2]

Thank you.