1099-OID Bond Premium (Box 10) Adjustment

[andrew0071]

I have an "error" in Smart Check indicating the amount shown as "Bond Premium" Box 10 of $40.29 must be reduced to Interest Income and excess reported on Sch A.  Any advice on what this is and how to correct appropriately?  

[baldietax]

Box 10 is meant to be a reduction for premium amortization against other income on the 1099 but I guess this error is saying that Box 10 is greater than the income reported for whatever reason, not sure why that would be - what type of bond is it and what else is reported on the 1099?

I've had cases where Charles Schwab will report 1099-OID Box 10 for munis because they have also tax-exempt OID In Box 6/11, but the Box 10 is really the premium adjustment against income reported on 1099-INT.

You should have some notes on the back of the 1099 for each box, for Box 10 I have from Schwab:

Box 10. For a taxable covered security, including a Treasury inflation-protected security, shows the amount of

premium amortization allocable to the interest payment(s), unless you notified the payer in writing in accordance with Regulations section 1.6045-1(n)(5) that you did not want to amortize bond premium under section 171. If an amount is reported in this box, see the Instructions for Schedule B (Form 1040 or 1040-SR). If an amount is not reported in this box for a taxable covered security acquired at a premium and the payer is reporting premium amortization, the payer has reported a net amount of interest in box 2. If the amount in this box is greater than the amount of interest paid on the covered security, see Regulations section 1.171-2(a)(4).

If there is an amount in both boxes 10 and 11, for a tax-exempt obligation that is a covered security acquired on

or after January 1, 2017, and issued with OID, the amount in box 10 shows the amount of premium amortization

for the year that reduces the amount of your tax-exempt interest for the year. The payer may, but is not required

to, report the premium amortization for a tax-exempt obligation that is a covered security acquired before January 1, 2017, and issued with OID.

[andrew0071]

Its a CA Muni Bond [individual issue and not a bond fund] and other info listed are Acquisition Premium [Box 6] and Tax Exempt OID [Box 11].

[andrew0071]

I've read the description on the back for Box 10 but not exactly clear as to how to correct Turbo Tax error on Smart Check.  

[baldietax]

is the 1099 from Schwab by chance?

I've always had issues actually entering Box 10 at all in this scenario and usually entered it as an "other" adjustment, but it worked for me as I had other OID income on the 1099 to cover it rather than having an 'excess'.

So I think the $40.29 is premium adjustment for your original acquisition that should have been reported on 1099-INT Box 13 offsetting a coupon payment in Box 8.

My suggestion would be to remove Box 10 and adjust it on the 1099-INT instead - either add it to Box 13 or enter as a manual adjustment (but only if you don't have other income boxes on the 1099 otherwise you have to split it up - same problem for accrued interest adjustments).

This won't affect Fed tax either way if this a tax-exempt bond, and if CA is your home state this won't affect State tax either.

[andrew0071]

Yes, its from Schwab.

So just zero out Box 10 and added to Tax Exempt OID [Box 11]? 

The OID input sheet only goes up to Box 11, does not have a Box 13 and Box 8 is OID for US Treasury.  

[baldietax]

no you wouldn't add it to Box 11, as Box 10 (and Box 6) are meant to reduce income not add to it

Box 8 and 13 I'm referring to are on 1099-INT not 1099-OID.  Do you have a 1099-INT in the consolidated statement from Schwab reporting coupon interest from the same bond?

(again if your home state is CA and this bond is exempt from both Fed and State tax you can probably just remove Box 10 and it won't affect your taxes)

[andrew0071]

My 1099-INT does show exactly how much coupon payment I received for this bond for the year.  Should I just deduct $40.29 from the total received?  

I am a CA resident and since this is a CA bond, it shouldn't affect my overal tax however, I just want to do it accurately.

I also have two other bonds with a value inside Box 10 causing the same "error" and on these two, they are out of state bonds, WI and TEX.  

By the way, are you a Tax Expert working with TT? Thanks.

[baldietax]

The general issue you will find it you have individual bonds with a mix of home state and out of state, is that for any adjustments which reduce the income (i.e. 1099-INT Box 13, 1099-INT accrued interest adjustments, 1099-OID Box 6/10), Turbotax doesn't know how to apply the adjustments between state exempt and state taxable munis; or between different types of income if you have a mixture on the 1099 (e.g. accrued interest adjustment on a 1099-INT with Box 1 or 3 as well as Box 😎 except for the 1099-INT Box 13 which is muni specific.

Turbotax even added on-screen guidance to split the 1099 if making adjustments to a 1099 which has amounts in more than one income box:

"The adjustment amount entered here will be allocated among the different types of interest reported on this 1099-INT. To apply this adjustment to a specific type of interest, create a separate 1099-INT for each type of interest income, and then enter the adjustment amount applicable to only that type of interest."

Hopefully you're aware to adjust (reduce income) for accrued interest paid if you purchased the bonds on the secondary market, in the tax year of the first coupon you receive.  This is not reported on 1099s, brokers may provide a supplemental schedule of accrued interest paid during the year, but don't formally report how to apply those payments against coupons received during the year.

The general process I've used for some years now is to split the 1099s and enter anything muni-related separately, and further split home vs. non-home state munis.

I've found it important to track this stuff offline in an excel sheet to come up with the total net muni income which ties to what Turbotax reports on 1040 Line 2a; and further breakdown the out-of-state portion which should tie to an "addition" to Federal income in your state return (or however your state handles this); and also track the accrued interest paid and which tax year to apply that in.

This net muni income (from what I've experienced) should be:

1099-INT Box 8, minus 1099-INT Box 13, minus 1099-INT accrued interest adjustments

plus 1099-DIV Box 12

plus 1099-OID Box 11, minus 1099-OID Box 6/10, minus 1099-OID adjustments.

so coming back to Box 10, I would adjust it against the income on 1099-INT either using Box 13 or an adjustment, with the caveats above if you have a mixture of income types or CA/non-CA munis I think you need to split up the 1099s to get the correct outcome on your state taxes.

I'm not an Intuit employee/expert nor CPA just a fellow user so the above is to the best of my knowledge and experience dealing with tax reporting on individual munis; here's another thread on this Box 10 topic (usually Schwab related)

https://ttlc.intuit.com/community/taxes/discussion/re-can-someone-help-me-correct-errors-on-imported...

[baldietax]

lol this always happens - "Box 8)" means "Box 8 )"

[baldietax]

Box 😎