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ACCRUED INTEREST ADJUSTMENT

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Level 2

Taxpayer received 1099-B showing accrued interest when they purchased bonds in Nov. I entered the bond name's on the interest smartsheet, opened page two entered A to make the adjustment but I am getting an error because they didn't receive an interest payment yet. How is the proper way to make this adjustment for the correct bond, I can make it work by putting the adjustment on another bond that paid interest for the year but I feel this isn't correct. Thank you in advance.

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Level 10

I don't think you get to offset other interest income.  It just "catches up" once the bond actually pays interest to the taxpayer (presumably in 2020).

So if you paid $400 of accrued interest in November, 2019 because you purchased the bond between interest dates and then the bond pays $500 interest in January, 2020 you would treat only $100 of the January interest as income.  But you don't offset other 2019 income.

At least that's my unresearched 2-days-before-a-deadline answer. 🙂

Rick

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Highlighted
Level 10

I don't think you get to offset other interest income.  It just "catches up" once the bond actually pays interest to the taxpayer (presumably in 2020).

So if you paid $400 of accrued interest in November, 2019 because you purchased the bond between interest dates and then the bond pays $500 interest in January, 2020 you would treat only $100 of the January interest as income.  But you don't offset other 2019 income.

At least that's my unresearched 2-days-before-a-deadline answer. 🙂

Rick

View solution in original post

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Level 11

The next pandemic legislation may have an "eat, drink and be merry" exception that allows us to subtract it from any old interest income this year, because who knows if any of us will be here next year.  The amounts I usually see for AIP are around $25, but if it is a significant number and it might distort tax brackets in one year or the other, a perfectionist would probably tattoo the client as a reminder not to forget.