How do I enter prepaid bond interest that should reduce my 1099 INT interest from the bonds I bought in 2018?

[ckimble4747]

When a bond is purchased on the secondary market, accrued interest is paid in addition to the price of the bond.  That prepaid interest is reported as part of the line 1 1099 INT form but should be subtracted from the interest income since it was prepaid by the taxpayer and returned to them in a regular interest payment.

[SteamTrain · Accepted solution]

Ok....here's what has to be done.   

IF your 1099-INT has only box 1 $$ on it (and maybe 11. Box 1&11 go together),  you can proceed as in steps 1-to-3 shown below.

If your 1099-INT has either of boxes 3 or 8 filled in.....then you would need to take the box 1&11 $$ out of that 1099-INT and create a separate 1099-INT for the box 1&11 $$.   (this also apples if you had accrued interest on bonds bought for box 3 or 8.  A separate 1099-INT would be needed for the box 3&12 or 8&13 amounts)

1) on that separate 1099-INT form, put in your box1&11 values...then "continue" to the next page.

2)  On the next page...check the top box "I need to adjust the taxable amount"  and "Continue"

3) enter the accrued interest, and select the accrued interest selection in the list below the box...and "Continue"
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Note :  Users need to realize that they can only do this for the tax year that they actually get their first interest payment from the bond they bought.  i.e. if you buy a bond with accrued interest in (say) Nov of 2018, but it doesn't pay out it's next interest until some time in 2019...then you have to wait until you file your 2019 tax return in early 2020 to declare the accrued interest.