Turbotax 2025 isn't adding Accrued Market Discount to the Cost Basis of Matured Treasuries causing double taxation of interest income.

[Aardi]

If I enter my redeemed T-Notes separately, Turbotax doesn't add the Accrued Market Discount (Line 1f of 1099-B) to the Cost Basis.  So I get double taxed for interest income since it was already reported via 1009-INT.

I decided to just report using the total figures and for the Cost Basis, I used the sum across all redemptions of lines 1e and 1f .

Anybody encounter this problem?

[Mike9241]

what did the1099-B show? If there is a mismatch in cost between what you reported and the cost reported to the IRS expect a letter from the IRS. 

If entered manually, TurboYax does not know and does not guess at the AMD 

[baldietax]

not seeing any issue - the cost basis will not get changed, the positive AMD from box 1f will be reported as a negative adjustment in column (g) on Schedule D and Form 8949, bringing the gain/loss to 0, and flipping the AMD over to Schedule B.

(suggest inputting these as one-by-one as reported on 1099B if not using that, which avoids triggering the additional Form 8453 / 1099B reporting to IRS.  if you input at summary level you have to input a negative adjustment)

89491099B Input One-By-One

[vossko]

Yes, I have exactly the same issue. 

If I try to enter as totals, the whole thing gets messed up. My AMD is about 8500 from Tbonds sold in 2025. If I adjust the cost basis by clicking the box and entering the market discount, I definitely get taxed twice on this income (once as capital gains, and then again as my cost basis is lowered by TT when I enter the market discount) . For TurboTax to report my capital gains/losses correctly, I need to enter the AMD as a negative number. But then I'm not reporting the income on the sale of this bond. So where would I do that?

I haven't tried entering all my sales individually. But I tried just entering the bond sales individually, and I still end up with the same double tax issue, although there is more options available. 

I'm not sure how to handle this in Turbo tax. My understanding is that the difference from what I paid for the bond  and the what the bond was worth at maturity should be taxed as interest, and not as a capital gain. 

[ThomasM125]

When you enter the investment sale from Form 1099-B, you need to adjust the cost basis to equal the sale proceeds. This will result in the investment sale showing $0 gain. Then, make an interest income entry to report the gain on sale/redemption as interest income. You do that in the Wages and Income section of TurboTax, then Interest and Dividends, then Interest on 1099-INT. This is assuming you purchased the bond at a discount and redeemed it for it's face value.

@vossko

[baldietax]

In summary mode it's a negative adjustment and it doesn't transfer automatically to Schedule B for whatever reason, at the bottom of the Capital Gain (Loss) Adjustments Worksheet (on desktop - not sure equivalent if you are using online) there is a field you can input to flip the adjustment to Schedule B.  I've always found summary level adjustments messy, and triggers need to mail IRS.

I would enter as One By One if able.  Box 1f is entered as a positive number but reflects as a negative adjustment to gain/loss on Form 8949.  Again as per previous post I am not seeing the double counting and never had an issue with that, see screenshots above - pls describe how yours are different or if you can attach an example (without personal info) that would be helpful to see.

[vossko]

Thank you Thomas and Balditax

I think your replies are leading me in the right direction. I am using summary mode, and yes, if I enter it as a negative adjustment (put the negative of box 1f), I don't get the double taxation. But if I enter a positive number, my taxes owed goes up substantially, and my capital gains/loss becomes incorrect. Should I select "B (cost basis incorrect on form) or "D (accrued market discount)? Regardless, I don't see any field to flip the adjustment to schedule D, even though I am using TT online. 

However, I did try to enter it in individual mode, and selecting accrued market discount does seem to zero out the capital gain and push it into the schedule D. Now I just need to figure out if my broker already included that interest in my 1099-div or not. Regardless, the individual mode seems to make more sense. 

Thank you for the help.

[baldietax]

If you use Summary mode I'm not sure how you get it to Schedule B with TT Online.  I would use Code D tho if it's AMD.  Maybe you can use a 1099 to add the income to Schedule B as @ThomasM125 suggests, but not sure all ramifications of this.

Personally I manually input my 1099Bs rather than importing, splitting them between One By One for all sales with adjustments (wash sales, AMD, non-covered lots etc) and the rest input as Sales Summaries with no adjustments, so there is nothing to mail IRS (tho with Online you can upload a PDF for this).

But there is one other consideration to be aware of before you decide which route to take - the AMD that gets moved to Schedule B is not automatically subtracted from state taxes like 1099-INT Box 3 or 1099-DIV US Gov Obligations.  There are various interpretations of state tax codes whether it's taxable or exempt, so it depends your state.  If you know/think it should be exempt it's can be solved with a manual subtraction in state taxes tho I've heard here that this precludes e-file in NY at least, and some states have other reporting requirements.  Putting a 1099 in to solve for Summary sales on Schedule B, could potentially be used to trigger the state subtraction but I can't advise on that.

Re "I just need to figure out if my broker already included that interest in my 1099-div or not" hopefully this should not be an issue, there shouldn't be anything on 1099-DIV for individual Treasuries but you should see separate coupon interest payments for Treasury Notes in Box 3 on 1099-INT.

[vossko]

Thanks again!

Yes indeed. I am in California, and yes, US gov interest is not taxable and I was thinking last night about how to handle this. I called my broker this morning and they couldn't answer if that interest was included in my 1099-int or not. The rep answered that they "should have", but couldn't say if they did. I haven't yet had time to go through my dozens of bonds and bills to determine if they did or did not.

I will go with entering individual sales. I see that if I do this, TT provides an option to correct the entry if the interest was included in a 1099-int. If my broker DID NOT include in the 1099-int, I think I will ask them to correct it, although that might or might not happen, and certainly not before the filing deadline. I don't know how to manually subtract from state taxes, however, so if someone has done that, please let me know. 

Question: If it turns out my broker DID NOT include this AMD in my 1099-int, do you think I could "make up" a 1099-int to report it so that I don't under report income, rather than moving it to a schedule B? Or is that asking for trouble?

Having learned my lesson on this, I think I will sell future bonds just before maturity, which I believe generates a capital gain, rather than interest. While that is not exempt from state taxes, it could be offset by losses and will be a lot easier to handle. 

[vossko]

Quick update for those of you who might stumble on this thread in the future.

Calling my broker didn't help, but after much spreadsheet juggling, I find that my broker (Etrade/Morgan Stanley) DOES include the proceeds from the maturation of my TBonds and TNotes in my 1099-INT on line 3. So I feel safe to zero that out with a negative adjustment using Code D when entering sales totals into TurboTax. After doing this my cap gains/losses are correct, and the income is not taxed by the state.

Thank you to the people in the thread for helping out. Very much appreciated!

[baldietax]

Few thoughts on your last couple of comments, hope this helps -

1. Not sure about how to handle CA and can't speak to the taxability - but you can probably find some old threads from last year, here's one from someone who said they handled it through an adjustments worksheet for CA (and someone in NY who gave up due to the e-file issue)

https://ttlc.intuit.com/community/taxes/discussion/accrued-market-discount-on-treasury-bond/00/34637...

2. I'm doubtful that the AMD is included by E-Trade in 1099-INT, I'd be interested to see if you have an example of one?  I had a low coupon T-Note on ETrade back in 2024 which reported about $800 in AMD on 1099-B and $15 on 1099-INT.  T-Bills are different tho as they are called out specifically in the tax code (see Publication 550) as short term instruments treated as interest - not sure what ETrade does but Merrill does not show T-Bills on 1099-B and just reports them as interest on 1099-INT; other brokers may show them on 1099-B also.  So you may see different reporting depending whether it's a Bill or Note.

3. Selling close to maturity will likely not turn AMD into G/L, really the only way to avoid this whole AMD situation is avoid low coupon / discounted bonds, and stick to higher coupon T-Notes where available.

Once you buy a bond at a discount, that discounted cost price is accruing daily to par at maturity.  On whatever date you redeem the bond, it will have accreted to a certain price (calculated by the broker) which gives you a certain amount of AMD at that point, and any "gain" up to that amount is treated as ordinary income, and you may recognize a capital gain if the market price is higher than that accreted price.  This could happen for example if there is a very large move in rates earlier in the life of your holding.

The G/L calc is handled on Form 8949 - the smaller of the AMD and proceeds-minus-cost, is treated as ordinary income.  So say you buy $10k par of a bond at 90 and sell at a point close to maturity when the accrued cost is say 99.5 i.e. AMD is $950.  If you sell at 99.6 you will have ordinary income of $950 and G/L of $10.  If you sell at 99.4 you will have ordinary income of $940 and G/L of $0.  At maturity by definition the AMD will be $1000, entirely ordinary income and G/L of $0.

[vossko]

Thanks again. 

You are totally right. I made an error (not sure how I did) in my spreadsheets. When I add my the "gains" on my tbills and the coupon interest paid on my notes/bonds, I get a number CLOSE to what is in my 1099-int. And that doesn't include the "gain" on the 2 tnotes that redeemed at maturity. But CLOSE is not good enough so i need to figure out what I am missing.

So I a bit back to square one..... In theory I can enter all my gains individually, and then TT will properly send the interest to a schedule B, but I have many hundreds of entries due to reinvested dividends all having different purchase dates. Can I just divide these into long and short term and just use VARIOUS or something as a purchase date? I doubt it. 

Even if I plow my way through that, I still need to figure out how to not pay California tax on that interest. Thanks for the tip on where to look for that.

Ugg.

EDIT: It gets even more confusing. As I look deeper I find that the Tnote cost basis reported on my 1099 for the redeemed notes does not match my purchase price. It matches the purchase price minus the interest that was already accrued on that bond when I purchased it. Since I already paid taxes on that interest in 2024 (I think), so if I use the AMD reported by etrade in my 1099, I will be paying taxes on that again. Interestingly, I also sold 2 tnotes in 2025 at a capital loss prior to maturity. In this case, my 1099 is exactly reporting the actual proceeds, when i subtract the interest I had accrued in the period between the last coupon and the sale. That value is included in my 1099-int,  I think. 

I have absolutely no idea how to properly report the interest through Turbotax. The 1099 really isn't correct for matured bonds, and it is mechanically difficult to use Turbotax. I'm not sure what I will do but I bet it will end up with me sending the feds a few hundred dollars in taxes more than I own, and the state a few thousand. Great. 

[baldietax]

ah yes One by One isn't great if you have hundreds, the most I've done is about 50; then import becomes useful if you need the detail.

maybe you should revisit the Sales Summary approach using a 1099-INT to get the AMD on Schedule B and that may help solve for the state tax also.  not tried it, again not sure if there's any issues this way.  you will be asked to send the details of the 1099B adjustments but if you are using TT Online it should have the ability to upload the PDF electronically instead of mailing Form 8453, see

https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099-b/need-include-1099-b-return/L...

[vossko]

Thank you Baldietax,

I think I am going to do exactly that. See my edit above about the complexities of the reported cost basis on these 2 bonds improperly including the accrued interest I paid when I purchased them. Fortunately these are low coupon bonds, so the double reporting of a few months interest is not too large a tax hit. 

[baldietax]

ok sounds like you're having fun.  generally I think the cost basis on 1099B should not include the accrued paid and you would adjust the 1099-INT for that to reduce the interest in the tax year of the first coupon payment after purchase.  Reporting varies between brokerages but I don't think many of them do that tracking, they will provide a summary of accrued interest paid and it's up to you to adjust the 1099-INT for it appropriately, or carry it over to the following tax year if you buy a bond after it's last coupon for the year.

the adjustment is done in the supplemental questions after the 1099-INT entry; with the caveat that Turbotax applies any adjustments pro-rata across all income boxes, so if you have a 1099 with multiple box income (i.e. Box 1/3/8) you have to split the 1099 up to get the right adjustment for Fed and State taxes.