Treasury bond bought in secondary market : Gain reporting difference in 1099b and TT online

[Jaganlv]

Hello,

I have 1099b reporting on Treasury bond bought in secondary market.

I bought $50,000 (maturing in Oct 2024) worth at discount 1500 at 48,500 (1500 discount) on Dec 2023, and I waited for maturity and got Interest of 700(reported in 1099 INT) till that time and full redemption of 50,000 came in October 2024.

My 1099b reports

1d proceeds as 50,000, 1e cost basic as 48,500 and 1f accrued market discount of 1500 and gain as 1500

Turbotax has imported this 1099b form and has all these info correctly but gain is 0.

I am not sure why and if it’s correct or if I have to adjust anything? Please help.

[DianeW777]

It depends.  If you paid any accrued interest when you purchased the Treasury bond in the secondary market you can adjust your interest and it gets added to your cost basis. Review your trade documents or your statement for details.

You should have a zero gain/loss when it is redeemed. 

Report the interest and then enter the adjustment you may have paid at purchase (Form 1099-INT).  If you are reporting Interest income on a bond that had accrued interest at the time you purchased, then you would reduce your interest income by the accrued interest at your purchase date. Enter the full amount of the interest, and then enter the Accrued Interest paid as an adjustment to reduce it. 

Enter the 1099-B as indicated by baldietax, and TurboTax will carry the information to the appropriate sections (interest and sale/redemption) appropriately.  

@Jaganlv

[Edited: 03/25/2025 | 5:48 AM PST]

[baldietax]

@DianeW777 you response is mixing up the accrued market discount with accrued coupon interest on the purchase (if any), latter will apply but not for $1500

@Jaganlv this reporting is correct.  Accrued Market Discount (AMD, the $1500) is not taxable as a capital gain it's ordinary income.  Box 1f creates an adjustment to zero out the G/L on your Schedule D / Form 8949.  TT should automatically move this amount to your Schedule B as "Accrued Market Discount" entry you should not have to enter that.  The end result on Schedule B should be $700 in coupon interest and $1500 in AMD.  Check your Schedule B to see this has all flowed correctly from the imported 1099s.

Back to the guidance from Diane, if you bought this on the secondary market in Dec 2023 you would have paid some accrued coupon interest (around $100? - see trade confirmation, it may also be in your brokerage consolidated 1099 as an supplementary information, possibly for 2024 or 2023) which reduces the first coupon you received in 2024 so your net taxable amount on that $700 coupon will be closer to $600 depending the exact dates.  Be sure to enter that adjustment, it will reflect as "Accrued Interest" on Schedule B (as a negative number).

2 issues to be aware of:

1. If you have multiple income boxes on your 1099-INT, TT will not know which Box 1, 3 or 8 the accrued interest adjustment applies to.  You will need to enter a separate 1099-INT for the Treasury interest to separate it from Box 1 and 8 to get the correct treatment.

2. TT does not include the $1500 AMD component as part of the state exemption / income subtractions.  There is some ambiguity in different state tax codes and debate whether it's exempt.  If it is exempt (can't advise on that), you likely need to make a manual subtraction to your state taxable income which most of the state programs support but may preclude e-file in some states (e.g. NY).

[baldietax]

P.S. if you're still actively investing in individual treasuries and want to avoid these AMD issues in 2025/6, better to stick to either:

T-Bills (zero coupon) for timeframes < 1 year which most brokers (but not all) report as straight interest on 1099-INT Box 3; or for longer maturities try to find T-Notes with higher coupons (>4% depending on market) which are priced much closer to par to reduce the AMD component if state tax is an issue, or slightly above par so there is no AMD and just a small premium adjustment which will be reported on the 1099-INT.

[Jaganlv]

I see TT has moved 1500 in Schedule B along with 700 interest.

Thanks for pointing 2023 accrued interest it did provide some 75$. I do not know where to enter  in TT online. I do not think i can edit schedule forms directly.

[baldietax]

not familiar with TT online myself but I think regardless of TT version, you should be able to edit/review the 1099 even if it was imported, and after the screen with the figures you should get an interview question "I need to adjust the interest on my form" and then a place to enter the amount (as a positive number) and a dropdown for the reason as "my accrued interest is included in this 1099-INT"

[Jaganlv]

Thanks for help.