Accrued Interest Paid exceeds Interest Income

[MRies129]

I have a 1099-INT where the Interest Income is less than the Accrued Interest Paid on Purchases. This results in negative numbers where TurboTax says the numbers cannot be negative. How should I handle this?

Additional context: This is on a 2023 return I am trying to amend (because I did not understand accrued interest at the time). In 2023 I opened an SMA (Separately Managed Account) of bonds where all of the purchases were made in the last quarter of the year. I suspect some of the interest payments made to me related to the accrued interest payments must have landed in 2024, but it is pretty hard to track all of the bits, especially because I am not personally making those purchases.

Thanks!

--Mike

[SteamTrain · Accepted solution]

@MRies129 

You are not allowed to declare (subtract) the interest accrued, until the year you actually get the first interest payment from that purchased bond.

Thus, if you buy a bond in (say) November of 2023, that doesn't pay you any interest until sometime in 2024...then you have to wait until your 2024 tax prep to declare (subtract) the accrued interest for that bond.

Yep....you have to find out, obtain, & keep good records yourself.

[MRies129]

Thanks, @SteamTrain. It makes my butt hurt, but I understand.

--Mike

[SteamTrain]

@MRies129 

And...an additional caution.

If you have a 1099-INT that has $$ in boxes 1, 3 and 8...or any combination of 2 of them...

Then...before declaring the accrued interest in the software, you must break out the $$ in the appropriate box into its own 1099-INT form, in order to declare the accrued interest for that bond type......if you don't, the tax software will apportion the accrued interest $$ among all three boxes according to what $$ amounts are in them.

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Example:   You have $1000 in each of boxes 1, 3, and 8 on the 1099-INT.  BUT you only have accrued interest to declare on the $$ in box 8  (Muni bonds).    In order for those $$ to be treated correctly, you have to put ten box 8 $$ in it's own separate 1099-INT (as-if from the same issuer) and then declare the accrued interest on that separate 1099-INT .  IF you don't do that, the accrued interest will be improperly divided up among the box 1, 3 and 8 $$....proportionate to the amounts in each  (in this simple example 1/3 of the accrued interest reported would be applied to each).

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Someday, TTX software folks will provide 3 separate worksheet lines to indicate which box the accrued interest is supposed to be applied against...but so far they haven't done so....and we have to adjust things appropriately.

[MRies129]

@SteamTrain, not an issue in this case, but thanks for the reminder!

--Mike