US Treasury Note

[wnetfor]

Please show me an example of how to enter into my TurboTax 2025 Desktop a US Treasury Note with all of the following characteristics:
1. a par value of $75,000.00
2. purchased by me 01/28/2025 from a broker
3. a base purchase price of $74,192.37
4. an Accrued Interest of $349.62 which was:
a. charged to me by the broker at the time of purchase and was included in the above base purchase price.
b. subtracted from my base purchase price to produce a Cost Basis of $73,842.75, which Cost Basis was reported on my 1099B Box 1e for this transaction. This Cost Basis represented a Market Discount of $1,157.25, which Market Discount was reported on my 1099B as Box 1f.
c. NOT included on any 1099-Int as interest income.
5. sold on 11/17/2025 and reported on a 1099-B as a 'Short-Term with Basis Reported to IRS' transaction yielding a Gain of $1,157.25

[baldietax · Accepted solution]

pls confirm accrued interest was "NOT included on any 1099-Int as interest income." which does not make sense to me ... if you purchased the bond on 1/28/25 and sold it on 11/17/25 there must have been two coupon payments in that time reported to you on 1099-INT which would have included the accrued interest you paid when you bought it which is not taxable to you.

So on your 1099-INT you should have something in Box 3 for this bond.  After the 1099-INT input boxes on the interview you would check the box that you need to make an adjustment, and enter the 349.62 (positive) as an accrued interest adjustment.  This 349.62 will be reflected as a negative "Accrued Interest" adjustment on your Schedule B.

Issue #1 - if this 1099-INT has other boxes (1 or 8 ) then you need to split up the 1099-INT and enter the Treasury boxes (3 & 12) separately, otherwise Turbotax will pro rata the accrued interest adjustment across all the boxes with income which may affect your Fed or State taxes.

For the 1099-B enter the boxes as provided, it's easier to enter these sales as "one by one" in Turbotax not as a sales summary as the AMD adjustment is easier to follow, and it avoids providing further details to the IRS (if you have other sales without wash sale or AMD adjustments you can split the 1099-B and enter the rest without adjustments as a simple sales summary).  Your cost basis on the principal was 73,842.75 this is correct, it should not include the $349.62 accrued interest.  If you have AMD = Gain/Loss = Purchase Discount = 1157.25 to be the same I think it would have matured rather than you sold it.

Turbotax will enter the sale onto Form 8949 with an adjustment which will zero out the gain/loss on Form 8949 and Schedule D, and transfer the AMD as ordinary income to Schedule B (AMD is taxed as ordinary income to the extent of the gain/loss - see IRS Pub 550).  You will see it as a line item on Schedule B with the description and "Accrued Market Discount".

Issue #2 - if you have state tax, the net amount of your 1099-INT Box 3 less Box 12 less accrued interest adjustments will be state tax exempt (along with any US Gov Obligations amount entered with your 1099-DIVs) - cross check the subtractions from income on your state tax return.  However AMD from Treasury Notes is not automatically transferred to your state return as exempt, there are various interpretations and ambiguities state by state whether it is exempt or not.  If you think it is exempt for your state you will need to adjust for it manually.

[wnetfor]

Thank you so much for your very prompt response.

Sorry for the confusion about the 1099-Int. When I said "c. NOT included on any 1099-Int as interest income." I was referring specifically and only to the $349.62 Accrued Interest. There were, indeed, 2 regular interest payments made directly to my account by the government -- I wasn't confused about them, but should have mentioned them. They were both for $843.75 and were paid to me on 5/15/2025 and 11/15/2025, and were definitely included in my 1099-Int from this broker as part of box 3 "Interest on U.S. Savings Bonds and Treas. Obligations". which TT understandably and correctly turns into a negative interest adjustment on my CA return.

I also apologize for misstating the disposition of the Note. It did, indeed, mature, and you are right on in guessing that was so! I was just in the buy and sell mindset of brokerage transactions......

I was still a bit confused in that my brokerage 1099-B Box 1f is labeled "Accrued Market Discount" and contains the aforesaid "Market Discount" of $1,157.25.The label TT uses for Box 1f in the interview is "Accrued INTEREST included in proceeds (market discount). I thought that was 2 different things. Anyway, after I enter the $1,157.25, TT asks me if "the accrued interest on this bond is reported in 1099-Int. Well, as I said, the $349.62 was not, so I left that unchecked. But on the next screen, TT summarizes that transaction and says the gain/loss is $0.00. I didn't understand this at all until I read your paragraph (repeated here for emphasis):
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Turbotax will enter the sale onto Form 8949 with an adjustment which will zero out the gain/loss on Form 8949 and Schedule D, and transfer the AMD as ordinary income to Schedule B (AMD is taxed as ordinary income to the extent of the gain/loss - see IRS Pub 550). You will see it as a line item on Schedule B with the description and "Accrued Market Discount".
-----
Sure enough, that looks exactly like what happened, and it seems to make sense.

I think I understand this a lot better now and, once again, thank you for your prompt response.

[baldietax]

sounds good... yes the "accrued interest included in proceeds (market discount)" verbiage is confusing, it changes to that when "Bond" is selected, they're over-cooking this screen with that product dropdown which isn't required by Form 8949.

the "the accrued interest on this bond is reported in 1099-Int" question (again confusing to keep referring to "accrued interest" here) - I think is allowing for the election to report AMD in income "currently" each year so the AMD in the 1099B would already have been taxed in that case, but this is an uncommon election I believe (section 1278(b) - see Pub 550).  so nothing to do with your $349.62 and not checking this is correct from what you've described.

I've seen different opinions on taxability in CA not sure what the definitive guidance is, you can find many threads on this topic in the forum e.g. see

https://ttlc.intuit.com/community/taxes/discussion/accrued-market-discount-on-treasury-bonds-state-t...

someone there pointed to this newsletter that it's considered taxable

https://taxtrimmers.com/bottomline/2024-10.shtml#bond

others adjust for the exemption

https://ttlc.intuit.com/community/taxes/discussion/accrued-market-discount-at-maturity-of-us-obligat...