Question on accrued interest and its treatment for treasury bonds

[nikul_patel]

I bought treasury bond in Oct 2018 (say for $10,000). It had accrued interest of say ($100). So my net cost of buying this was $10,100. I did not receive any interest payment. Next payment is not until 2019. On my 1099-INT, there is no interest reported for 2018 but in footnote there is a charge for $100 (for accrued interest). 

What do I do with that $100 charge on 2018 taxes?

Now in 2019, if I get $1200 interest, should i just subtract $100 from $1200 and pay taxes on $1100?

Thanks for your help.

[SteamTrain · Accepted solution]

….and...when you file the 1099-INT "for" 2019 (in 2020),  …..IF the 1099-INT you receive from the broker has a mix of box 1, 3, and 8 values on it (in any combination)? 

.........….Then, in the software,  you need to take your box 3 value of 1200 (and box 12 too if there is any $$ in it) and put it in it's own 1099-INT form.  On a page after the main form, you check a box "I need to adjust the taxable amount", and on the page after that you will enter the $100 of accrued interest, and the software then adjusts the amounts appropriately on the federal and state tax forms.

The same procedure applies if you ever buy bonds with accrued interest  for corporate bonds (box 1&11) or Muni bonds (box 8&13).  You break out the total values reported in those boxes into their own 1099-INT if you need to report accrued interest for any of them.

Why?  if you don't do that, the software will proportionate the accrued interest between the values in boxes 1, 3, and 8 if you leave it on a combined 1099-INT...and that will report it all wrong.

[Anonymous]

you don't get the deduction in 2018 but in 2019. so you are correct in that in 2019 you'll pay taxes on $1100