1099-INT and adjusting interest

[jman3]

My 1099-INT has amounts in box 1 (interest) and box 13 (bond premium). It lists accrued interest I paid when I purchased the bonds, and also lists unrealized cost basis information subject to amortization/accretion of bond premium (since I paid a premium for the bonds). When I input the form and click to adjust the taxable amount, it gives me options to select only one of: accrued interest is included in form, amortized a premium paid on a bond, or other reasons.

The interest I paid and the amortized premium amount combined would exceed the interest of the form. Should I split the 1099 form somehow so that I can put each option separately (the interest paid, and amortized premium), or should I add the accrued interest and amortized premium paid under "other reasons"?

And are there implications for doing either option for federal or state taxes? I was not sure what is the best way to put in the adjustments, or what happens to the amortized premium if I do not use it all for now (if there will be a capital loss next year for the full amount anyway if I do not amortize it for now). Thanks!

[DianeW777 · Accepted solution]

You do not lose the amortized premiums. Select the correct reason for the adjustment of your interest. 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. Any excess can be used as an itemized deduction under Miscellaneous Deductions, line 16, if you use them.

• IRS Instructions Schedule A
• IRS Instructions Schedule B

The deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Any amount you cannot deduct because of this limit can be carried forward to the next accrual period. If this is your situation keep your records to record the amount later that you were unable to use in 2022.

[jman3]

Thank you @DianeW777

Just to confirm, can I split my 1099-INT (with lines 1 and 11) into the following two entries (as if they were two separate 1099s) to take advantage of the two different adjustments as follows to cover the taxable amount:

1099-INT a: Line 1 interest (partial). Adjust taxable amount with amortized bond premium.

1099-INT b: Line 1 interest (remaining amount) and line 11 (in full). Adjust taxable amount with accrued interest already paid.

I would still have some leftover accrued interest paid that I can use next year to adjust some taxable interest then. Does this approach work? Thanks again.

[DianeW777]

It depends.  The amortized bond premium must be used to offset the interest from the same bond.  If this is the case you can offset the interest by the amortized bond premium as you suggest. If you have additional questions, please enter them here.  It's not quite clear how splitting a 1099-INT into two separate entries would accomplish using more of the premium.

[jman3]

Thank you @DianeW777 

To follow up, I am deciding what is the best way to offset my 1099-INT using both amortized bond premium and also accrued interest paid. When I select to adjust the taxable interest of the form, it gives me an option of selecting amortized taxable bond premium, accrued interest paid, or other reasons (if I were to combine both amounts it seems). I noticed that when I put in the amortized bond premium option, it also lowers my NJ state tax slightly. When I put in amounts under accrued interest paid only, or combine the premium and interest paid amounts under other reasons, it does not decrease the NJ taxes. So I was thinking of splitting the 1099-INT into two separate entries, one to use up the amortized premium for this bond (and also lower my NJ taxes that somehow are impacted by this choice), and then the other to use accrued interest paid to lower the taxable interest further. Does that approach make sense? Thanks again for your help, I appreciate it.

[DianeW777]

Yes. Your approach makes sense as long as the accrued interest and the amortized bond premium are for the same bond interest begin reported, you should be fine to make the adjustments in two entries.

[kbrooksesq]

Still somewhat confused.  I have 1099-int with de minimus taxable interest amount on L1 ($41), tax-exempt interest on L8 ($10434) and a figure on L13 ($6422).  Do not understand how to report L13 as when I open up a second 1099-int screen and try to "adjust", the software doesn't tell me WHAT BOX to put $6422 in to adjust. Why doesn't TTax just have a box 13 for input?    

[DianeW777]

There is an entry for Box 13 for the 1099-INT.  You must select the checkbox beside 'My form has info in more than just box 1'

As stated previously and placed here for your convenience The amortized bond premium must be used to offset the interest from the same bond.  If this is the case you can offset the interest by the amortized bond premium. (Review the earlier thread for more information.)

@kbrooksesq