Fidelity showing T-Bills as Capital Gains

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TiredLawyer
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Fidelity showing T-Bills as Capital Gains

Post by TiredLawyer »

I have several T-Bills that have matured this year. Fidelity’s tax center is showing these as short-term capital gains. Has anyone else noticed this? I’m hoping that I don’t have to manually fix these entries during tax time.
lstone19
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Re: Fidelity showing T-Bills as Capital Gains

Post by lstone19 »

I assume you bought and/or sold these on the secondary market. I’ve only bought at auction and held to maturity and they were reported as all interest.

I’ve always assumed that when bought or sold on the secondary market, any discount or premium to relative to the accrued interest since issue is a capital gain or loss. So I also assume that the amount they’re showing as a capital gain or loss is small relative to the amount being shown as interest. Or are they showing the whole thing as a capital gain?
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TiredLawyer
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Re: Fidelity showing T-Bills as Capital Gains

Post by TiredLawyer »

These were indeed purchased on the secondary market and then held to maturity. The amount they are reporting as capital gains is the difference between purchase price and the amount paid out at maturity. I believe these had a zero coupon, but had assumed that the difference in purchase price/redeemed amount would ultimately be taxed as interest (and tax-free on the state level). Did I make a mistake in assuming this?
lstone19
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Re: Fidelity showing T-Bills as Capital Gains

Post by lstone19 »

TiredLawyer wrote: Sat Nov 04, 2023 2:02 am These were indeed purchased on the secondary market and then held to maturity. The amount they are reporting as capital gains is the difference between purchase price and the amount paid out at maturity. I believe these had a zero coupon, but had assumed that the difference in purchase price/redeemed amount would ultimately be taxed as interest (and tax-free on the state level). Did I make a mistake in assuming this?
As I said, I’ve only bought at auction. I’d assume it will be corrected before 1099s are issued just like most mutual fund distributions are shown as non-qualified until close to when 1099s are issued. But that’s just a guess.
nalor511
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Re: Fidelity showing T-Bills as Capital Gains

Post by nalor511 »

It will be 1099int regardless what the ytd tax page currently says (unless you sold before maturity). You are not Fidelity's first rodeo
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HueyLD
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Re: Fidelity showing T-Bills as Capital Gains

Post by HueyLD »

TiredLawyer wrote: Sat Nov 04, 2023 1:15 am I have several T-Bills that have matured this year. Fidelity’s tax center is showing these as short-term capital gains. Has anyone else noticed this? I’m hoping that I don’t have to manually fix these entries during tax time.
Are you sure those were T bills instead of T notes or bonds?
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TiredLawyer
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Re: Fidelity showing T-Bills as Capital Gains

Post by TiredLawyer »

I’m not 100% sure whether these are bills, but I typically look for 3-6 month durations.
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Re: Fidelity showing T-Bills as Capital Gains

Post by LSLover »

TiredLawyer wrote: Sat Nov 04, 2023 1:15 am I have several T-Bills that have matured this year. Fidelity’s tax center is showing these as short-term capital gains. Has anyone else noticed this? I’m hoping that I don’t have to manually fix these entries during tax time.
I have exact same situation. Spoke to Fidelity and they told me that it will be reported on 1099-INT as interest and I should not pay attention to the current classification as the capital gains.
MrJedi
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Re: Fidelity showing T-Bills as Capital Gains

Post by MrJedi »

It will be reported differently on the official 1099 tax form. There are several things on that tax page that aren't fully reflective of what will go on the 1099. Another one I know is qualified dividends. I believe there is a disclaimer saying not to use that page as official tax information.
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Drew31
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Re: Fidelity showing T-Bills as Capital Gains

Post by Drew31 »

TiredLawyer wrote: Sat Nov 04, 2023 6:39 am I’m not 100% sure whether these are bills, but I typically look for 3-6 month durations.

On secondary market you can easily find Notes (not Bills) with 3-6 month duration. I’d double check what you actually bought to see what the description says.
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Re: Fidelity showing T-Bills as Capital Gains

Post by Call_Me_Op »

HueyLD wrote: Sat Nov 04, 2023 3:17 am
TiredLawyer wrote: Sat Nov 04, 2023 1:15 am I have several T-Bills that have matured this year. Fidelity’s tax center is showing these as short-term capital gains. Has anyone else noticed this? I’m hoping that I don’t have to manually fix these entries during tax time.
Are you sure those were T bills instead of T notes or bonds?
I don't think that matters if he holds to maturity.
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TiredLawyer
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Re: Fidelity showing T-Bills as Capital Gains

Post by TiredLawyer »

LSLover wrote: Sat Nov 04, 2023 6:43 am
TiredLawyer wrote: Sat Nov 04, 2023 1:15 am I have several T-Bills that have matured this year. Fidelity’s tax center is showing these as short-term capital gains. Has anyone else noticed this? I’m hoping that I don’t have to manually fix these entries during tax time.
I have exact same situation. Spoke to Fidelity and they told me that it will be reported on 1099-INT as interest and I should not pay attention to the current classification as the capital gains.
That’s good to know. I won’t worry about it then and hope it gets resolved by the 1099-INT.
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HueyLD
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Re: Fidelity showing T-Bills as Capital Gains

Post by HueyLD »

TiredLawyer wrote: Sat Nov 04, 2023 8:31 am
LSLover wrote: Sat Nov 04, 2023 6:43 am
TiredLawyer wrote: Sat Nov 04, 2023 1:15 am I have several T-Bills that have matured this year. Fidelity’s tax center is showing these as short-term capital gains. Has anyone else noticed this? I’m hoping that I don’t have to manually fix these entries during tax time.
I have exact same situation. Spoke to Fidelity and they told me that it will be reported on 1099-INT as interest and I should not pay attention to the current classification as the capital gains.
That’s good to know. I won’t worry about it then and hope it gets resolved by the 1099-INT.
Fido’s YTD tax activity section shows tentative numbers without fine adjustments needed for income tax documents.

In addition to not showing qualified vs. nonqualified dividends distinction, it also doesn’t know if you choose to accrete discounts every year. That’s why there are many notes in the footnote section including one that says that some gains may be considered ordinary income.
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TiredLawyer
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Re: Fidelity showing T-Bills as Capital Gains

Post by TiredLawyer »

It’s good to know that Fidelity normally works this out. Unlike Apex Clearing which seems to make the same mistake year after year.
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Re: Fidelity showing T-Bills as Capital Gains

Post by shess »

Call_Me_Op wrote: Sat Nov 04, 2023 8:23 am
HueyLD wrote: Sat Nov 04, 2023 3:17 am
TiredLawyer wrote: Sat Nov 04, 2023 1:15 am I have several T-Bills that have matured this year. Fidelity’s tax center is showing these as short-term capital gains. Has anyone else noticed this? I’m hoping that I don’t have to manually fix these entries during tax time.
Are you sure those were T bills instead of T notes or bonds?
I don't think that matters if he holds to maturity.
I fleshed out a T-bill ladder last year on the secondary market and ended up with some notes in there. My assumption is that the coupon payments received are treated as interest, while the discount or premium will be treated as capital gains or losses (and thus I think I'll be taxed at the state level on those). I could be wrong, but I'm not clear on why the tax treatment of a note or bond would change based on remaining maturity at sale.
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Re: Fidelity showing T-Bills as Capital Gains

Post by student »

TiredLawyer wrote: Sat Nov 04, 2023 9:43 am It’s good to know that Fidelity normally works this out. Unlike Apex Clearing which seems to make the same mistake year after year.
Last year Fidelity handled it correctly for me buy etrade did not. viewtopic.php?t=396561
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Re: Fidelity showing T-Bills as Capital Gains

Post by FactualFran »

shess wrote: Sat Nov 04, 2023 2:07 pm I fleshed out a T-bill ladder last year on the secondary market and ended up with some notes in there. My assumption is that the coupon payments received are treated as interest, while the discount or premium will be treated as capital gains or losses (and thus I think I'll be taxed at the state level on those). I could be wrong, but I'm not clear on why the tax treatment of a note or bond would change based on remaining maturity at sale.
T-Bills do not make coupons payments. If held to maturity, the difference between the price paid and the proceeds at maturity is taxed as interest income. If sold before maturity, not all of the difference between the price paid and the proceeds of the sale is necessarily taxed as interest income, there can be a capital gain or a capital loss.

As far as I know, the tax treatment of T-Notes and T-Bonds is not different when bought at least a year before maturity or less than a year before maturity.
nalor511
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Re: Fidelity showing T-Bills as Capital Gains

Post by nalor511 »

My ytd tax info page at Fidelity shows tbills that matured this year as interest - no capital gains
1moreyr
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Re: Fidelity showing T-Bills as Capital Gains

Post by 1moreyr »

I am not a expert and I understand it should be categorized correctly,, but .....

short term capital gains and interest both get taxed as ordinary income. is there any reason we should care other than the mischaracterization?
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Re: Fidelity showing T-Bills as Capital Gains

Post by nalor511 »

1moreyr wrote: Sat Nov 04, 2023 6:02 pm I am not a expert and I understand it should be categorized correctly,, but .....

short term capital gains and interest both get taxed as ordinary income. is there any reason we should care other than the mischaracterization?
Stcg is taxed by states, Treasury interest is not.
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Re: Fidelity showing T-Bills as Capital Gains

Post by 1moreyr »

nalor511 wrote: Sat Nov 04, 2023 6:07 pm
1moreyr wrote: Sat Nov 04, 2023 6:02 pm I am not a expert and I understand it should be categorized correctly,, but .....

short term capital gains and interest both get taxed as ordinary income. is there any reason we should care other than the mischaracterization?
Stcg is taxed by states, Treasury interest is not.
got it.....thanks
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Re: Fidelity showing T-Bills as Capital Gains

Post by hghysm21 »

A treasury I bought in Fidelity 2ndary market matured. In the YTD tax table, the interest is shown in the Interest box. The discount at purchase is shown in the Capital Gain box. Fidelity has an article about this:
6-14-23 viewpoint:
Interest income from Treasury bonds is exempt from state and local income taxes, but subject to federal income taxes. There may also be tax consequences when you sell Treasurys that you bought on the secondary market. If you buy a bond for less than face value on the secondary market and either hold it until maturity or sell it at a profit, the gain will be subject to federal and state taxes. This is different than buying a Treasury bill at Original Issue Discount (OID). When a bond is sold or matures, gains resulting from purchasing a bond at a discount in the secondary market are treated as capital gains while OID gains are taxed as income.

My question:
At tax reporting, will the Accrued Market Discount be treated as capital gain?
Anyone has experience with this?
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Re: Fidelity showing T-Bills as Capital Gains

Post by hghysm21 »

A treasury I bought in Fidelity 2ndary market matured. In the YTD tax table, the interest is shown in the Interest box. The discount at purchase is shown in the Capital Gain box. Fidelity has an article about this:
6-14-23 viewpoint:
Interest income from Treasury bonds is exempt from state and local income taxes, but subject to federal income taxes. There may also be tax consequences when you sell Treasurys that you bought on the secondary market. If you buy a bond for less than face value on the secondary market and either hold it until maturity or sell it at a profit, the gain will be subject to federal and state taxes. This is different than buying a Treasury bill at Original Issue Discount (OID). When a bond is sold or matures, gains resulting from purchasing a bond at a discount in the secondary market are treated as capital gains while OID gains are taxed as income.

My question:
At tax reporting, will the Accrued Market Discount be treated as capital gain?
Anyone has experience with this?
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Re: Fidelity showing T-Bills as Capital Gains

Post by TetrisCollider »

I am resurrecting this thread as we now have received official 2023 tax forms from Fidelity.

I am looking at my 1099s and see the following (using US Treasury Note CUSIP 912828ZH6 which matured and was purchased on a secondary market as a specific example):
  • $12.50 reported as Interest on US Savings Bonds & Treasury Obligations on 1099-INT, Box 3
  • $205.10 reported as Short Term Capital Gain on 1099-B, Accrued Market Discount, Box 1f
So, it seems that after all is said and done, Fidelity is reporting Accrued Market Discounts for T-Notes purchased on the secondary market as Capital Gains/Losses (Short/Long Term) and NOT as Interest on 1099-INT.

THE QUESTION - are adjustments need to be made to this reporting at all on Form 8949, Schedule D or not? And if the answer is no, I presume that this Capital Gain is now TAXED at a State level, since it is NOT treated as US Treasury Interest?
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HueyLD
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Re: Fidelity showing T-Bills as Capital Gains

Post by HueyLD »

Fidelity reports your gains correctly on 1099-B.

See Form 8949 Instructions page 11 for adjustments needed to transfer appropriate amount to interest income.

https://www.irs.gov/pub/irs-pdf/i8949.pdf
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Re: Fidelity showing T-Bills as Capital Gains

Post by FactualFran »

TetrisCollider wrote: Sun Feb 11, 2024 11:34 am So, it seems that after all is said and done, Fidelity is reporting Accrued Market Discounts for T-Notes purchased on the secondary market as Capital Gains/Losses (Short/Long Term) and NOT as Interest on 1099-INT.

THE QUESTION - are adjustments need to be made to this reporting at all on Form 8949, Schedule D or not? And if the answer is no, I presume that this Capital Gain is now TAXED at a State level, since it is NOT treated as US Treasury Interest?
It seem to me that Fidelity is reporting the accrued market discount as an accrued market discount and not as a short-term capital gain. The sale should be reported as part of the income tax return on a row of Form 8949. That row should include an adjustment code of D (in column (f)) and an adjustment amount of the accrued market discount (in column (g)), which will affect the gain in column (h). The income tax return should also include Schedule B with the accrued market discount amount included in a row of line 1 (interest).
TetrisCollider
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Re: Fidelity showing T-Bills as Capital Gains

Post by TetrisCollider »

Thank you HueyLD & FactualFran.

While Fidelity's 1099-B does have $205.10 listed under 1f (Accrued Market Discount), the 1099-B Totals summary has this amount listed as part of Box A - Short-Term Realized Gain.

I am using TurboTax Premier 2023 (Desktop version) and when I enter this 1099-B using Step-by-Step, there are no options provided to identify Accrued Market Discount entries - only Short/Term Capital Gains/Losses. If I switch to Forms, neither on Schedule B or Form 8949, this is not entered as Accrued Market Discount, but as Short Term Capital Gain. So it seems I have to force this entry (Accrued Market Discount) manually using the Forms section, as Step-by-Step does not provide such an option.

Either I am doing something wrong (using the Step-by-Step) or TurboTax did not include this option in the flow or missed it completely (as they have been known to do on multiple occasions).
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Re: Fidelity showing T-Bills as Capital Gains

Post by cas »

TetrisCollider wrote: Sun Feb 11, 2024 1:49 pm I am using TurboTax Premier 2023 (Desktop version) and when I enter this 1099-B using Step-by-Step, there are no options provided to identify Accrued Market Discount entries - only Short/Term Capital Gains/Losses. If I switch to Forms, neither on Schedule B or Form 8949, this is not entered as Accrued Market Discount, but as Short Term Capital Gain. So it seems I have to force this entry (Accrued Market Discount) manually using the Forms section, as Step-by-Step does not provide such an option.

Either I am doing something wrong (using the Step-by-Step) or TurboTax did not include this option in the flow or missed it completely (as they have been known to do on multiple occasions).
Here's a post in the Taxation of Treasury bills, notes and bonds megathread where I did a test of how Turbotax handled accrued market discount on a Treasury note/bond: viewtopic.php?p=6966716#p6966716

(Test done in late 2022 with Turbotax 2021, so not the current Turbotax release. I haven't looked to see if Turbotax is still the same for 2023. But in 2022 Turbotax definitely provided a way to handle accrued market discount at the federal level.)
NoLanding86
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Re: Fidelity showing T-Bills as Capital Gains

Post by NoLanding86 »

1moreyr wrote: Sat Nov 04, 2023 6:02 pm I am not a expert and I understand it should be categorized correctly,, but .....

short term capital gains and interest both get taxed as ordinary income. is there any reason we should care other than the mischaracterization?
Yes, this can be incredibly important for some people. In 2022 I did a lot of tax loss harvesting and racked up a good amount of "losses" to roll forward. In 2023 I bought many treasury bills on the secondary market and held to maturity. My return on the treasury bills will be counted as "capital gains" and I will use my 2022 losses to offset this. I won't owe any capital gains tax on my treasuries because of this.
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Re: Fidelity showing T-Bills as Capital Gains

Post by Geologist »

NoLanding86 wrote: Sun Feb 11, 2024 2:36 pm
1moreyr wrote: Sat Nov 04, 2023 6:02 pm I am not a expert and I understand it should be categorized correctly,, but .....

short term capital gains and interest both get taxed as ordinary income. is there any reason we should care other than the mischaracterization?
Yes, this can be incredibly important for some people. In 2022 I did a lot of tax loss harvesting and racked up a good amount of "losses" to roll forward. In 2023 I bought many treasury bills on the secondary market and held to maturity. My return on the treasury bills will be counted as "capital gains" and I will use my 2022 losses to offset this. I won't owe any capital gains tax on my treasuries because of this.
You need to read farther up in this thread and in the separate thread on Taxation of Treasuries. The tax authorities don't define increase in value of treasury bills as capital gains. Increase in value on treasury bills purchased in the secondary market is "accrued market discount", which is interest and cannot be offset by capital losses.

Edit: here is the separate thread on Taxation of Treasuries: viewtopic.php?t=390405

It refers to "accrued acquisition discount" rather than "accrued market discount" but it is the same.
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Re: Fidelity showing T-Bills as Capital Gains

Post by Artsdoctor »

NoLanding86 wrote: Sun Feb 11, 2024 2:36 pm
1moreyr wrote: Sat Nov 04, 2023 6:02 pm I am not a expert and I understand it should be categorized correctly,, but .....

short term capital gains and interest both get taxed as ordinary income. is there any reason we should care other than the mischaracterization?
Yes, this can be incredibly important for some people. In 2022 I did a lot of tax loss harvesting and racked up a good amount of "losses" to roll forward. In 2023 I bought many treasury bills on the secondary market and held to maturity. My return on the treasury bills will be counted as "capital gains" and I will use my 2022 losses to offset this. I won't owe any capital gains tax on my treasuries because of this.
Treasury instruments purchased at a discount will be taxed as interest.

In your particular case, if you bought treasury BILLS on the secondary market and held them to maturity, the difference between the purchase price and par will be income, not capital gains. It would be unlikely that your 1099s would reflect this as a capital gain but if it did, it would be incorrect.
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Re: Fidelity showing T-Bills as Capital Gains

Post by TetrisCollider »

cas wrote: Sun Feb 11, 2024 1:56 pm
TetrisCollider wrote: Sun Feb 11, 2024 1:49 pm I am using TurboTax Premier 2023 (Desktop version) and when I enter this 1099-B using Step-by-Step, there are no options provided to identify Accrued Market Discount entries - only Short/Term Capital Gains/Losses. If I switch to Forms, neither on Schedule B or Form 8949, this is not entered as Accrued Market Discount, but as Short Term Capital Gain. So it seems I have to force this entry (Accrued Market Discount) manually using the Forms section, as Step-by-Step does not provide such an option.

Either I am doing something wrong (using the Step-by-Step) or TurboTax did not include this option in the flow or missed it completely (as they have been known to do on multiple occasions).
Here's a post in the Taxation of Treasury bills, notes and bonds megathread where I did a test of how Turbotax handled accrued market discount on a Treasury note/bond: viewtopic.php?p=6966716#p6966716

(Test done in late 2022 with Turbotax 2021, so not the current Turbotax release. I haven't looked to see if Turbotax is still the same for 2023. But in 2022 Turbotax definitely provided a way to handle accrued market discount at the federal level.)
Cas, thank you very much for this. In a way, this actually helped. Here are the details:
  • Something just was not looking right in TurboTax 2023, so after reading your reply, I went to my TurboTax 2022 and essentially simulated entering my 2023 entry using 2022 version. Lo and Behold, there was an available box for "My 1099-B has additional boxes checked" and once clicked, gave me an Accrued Market Discount 1(f) box. And after I entered the info, I went directly into Form 8949, which was filled out correctly.
  • So, now that I knew exactly what to look for in 8949 form, I started playing with TT 2023. First and foremost, the Step-by-Step screens in TT 2023 for 1099-B entries look completely different from 2022 version. When I was entering my 1099-B initially in TT 2023, I picked to enter it as a REPORTED SUMMARY. The only thing that option provided for variations is to check a box named "I need to adjust my cost basis". When this was box was checked, Accrued Market Discount box did show up, but when numbers were entered, the Total Gain was essentially doubled and on top of that, the next screen said that "You will need to mail in your tax return to IRS". BTW, 8949 form in TT 2023 looks quite a bit different from version 2022 and not for the better.
  • Obviously this was completely wrong and then I tried to enter (again, using TT 2023) 1099-B as Individual entries. Using this option now did give me the same options as in 2022 version, where I was able to enter Box 1(f) entry. Interestingly, the description of the box was "Accrued Interest Included in Proceeds (Market Discount)". Once the numbers were entered, the total Capital Gains were correctly adjusted to Zero, but when I looked in form 8949, there was NO ENTRY at all of this line - it was only shown on Schedule B.
Bottom Line at this time - it seems that TurboTax Premier 2023 version is either screwed up with regards to Accrued Market Discount and hopefully will get updated by Intuit soon, or this will not get corrected and the only way to correctly enter things is to manually force it in all the needed forms (which I have done in at least one past version).

Hope this helps others when they encounter this.
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NoLanding86
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Re: Fidelity showing T-Bills as Capital Gains

Post by NoLanding86 »

Artsdoctor wrote: Sun Feb 11, 2024 3:23 pm
NoLanding86 wrote: Sun Feb 11, 2024 2:36 pm
1moreyr wrote: Sat Nov 04, 2023 6:02 pm I am not a expert and I understand it should be categorized correctly,, but .....

short term capital gains and interest both get taxed as ordinary income. is there any reason we should care other than the mischaracterization?
Yes, this can be incredibly important for some people. In 2022 I did a lot of tax loss harvesting and racked up a good amount of "losses" to roll forward. In 2023 I bought many treasury bills on the secondary market and held to maturity. My return on the treasury bills will be counted as "capital gains" and I will use my 2022 losses to offset this. I won't owe any capital gains tax on my treasuries because of this.
Treasury instruments purchased at a discount will be taxed as interest.

In your particular case, if you bought treasury BILLS on the secondary market and held them to maturity, the difference between the purchase price and par will be income, not capital gains. It would be unlikely that your 1099s would reflect this as a capital gain but if it did, it would be incorrect.
Aye! Thanks. Well, in this case I will keep all of my losses from 2022 and continue to roll forward. If my CPA says anything different I will definitely report back here. 2023 was the first time I've ever bought treasuries.
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Artsdoctor
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Re: Fidelity showing T-Bills as Capital Gains

Post by Artsdoctor »

^ It can get a little bit more challenging when you're selling before maturity date, and notes are handled a little differently than bills. But if you're holding until maturity, then it's pretty straightforward and the 1099s should be easy to figure out.
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Re: Fidelity showing T-Bills as Capital Gains

Post by MisterMister »

Artsdoctor wrote: Sun Feb 11, 2024 4:54 pm ^ It can get a little bit more challenging when you're selling before maturity date, and notes are handled a little differently than bills. But if you're holding until maturity, then it's pretty straightforward and the 1099s should be easy to figure out.
I received a 1099-B from Fidelity for 2023. ALL of my T-Bill gains (whether the bond was held to maturity or not) were reported as interest. I also had a T-Bill transaction which resulted in a loss and that one was not reported at all.

The "Taxation of Treasury bills, notes and bonds" super-thread had a discussion which (I think decisively) concluded that disposing of T-Bills before maturity might result in a mix of cap gains and interest, and also demonstrated how to calculate the mix. Be that as it may, Fidelity appears to not be using that method for reporting with T-Bills, opting instead for reporting everything as interest.

EDIT: The 1099-B was part of a consolidated 1099 from Fidelity. The 1099-B portion actually had NO entries for any of the T-bill transactions (only notes and TIPs), and the interest, as mentioned, was in the 1099-INT section of the document.
Last edited by MisterMister on Mon Feb 12, 2024 9:39 pm, edited 1 time in total.
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Re: Fidelity showing T-Bills as Capital Gains

Post by AQ »

TetrisCollider wrote: Sun Feb 11, 2024 3:27 pm
cas wrote: Sun Feb 11, 2024 1:56 pm
TetrisCollider wrote: Sun Feb 11, 2024 1:49 pm I am using TurboTax Premier 2023 (Desktop version) and when I enter this 1099-B using Step-by-Step, there are no options provided to identify Accrued Market Discount entries - only Short/Term Capital Gains/Losses. If I switch to Forms, neither on Schedule B or Form 8949, this is not entered as Accrued Market Discount, but as Short Term Capital Gain. So it seems I have to force this entry (Accrued Market Discount) manually using the Forms section, as Step-by-Step does not provide such an option.

Either I am doing something wrong (using the Step-by-Step) or TurboTax did not include this option in the flow or missed it completely (as they have been known to do on multiple occasions).
Here's a post in the Taxation of Treasury bills, notes and bonds megathread where I did a test of how Turbotax handled accrued market discount on a Treasury note/bond: viewtopic.php?p=6966716#p6966716

(Test done in late 2022 with Turbotax 2021, so not the current Turbotax release. I haven't looked to see if Turbotax is still the same for 2023. But in 2022 Turbotax definitely provided a way to handle accrued market discount at the federal level.)
Cas, thank you very much for this. In a way, this actually helped. Here are the details:
  • Something just was not looking right in TurboTax 2023, so after reading your reply, I went to my TurboTax 2022 and essentially simulated entering my 2023 entry using 2022 version. Lo and Behold, there was an available box for "My 1099-B has additional boxes checked" and once clicked, gave me an Accrued Market Discount 1(f) box. And after I entered the info, I went directly into Form 8949, which was filled out correctly.
  • So, now that I knew exactly what to look for in 8949 form, I started playing with TT 2023. First and foremost, the Step-by-Step screens in TT 2023 for 1099-B entries look completely different from 2022 version. When I was entering my 1099-B initially in TT 2023, I picked to enter it as a REPORTED SUMMARY. The only thing that option provided for variations is to check a box named "I need to adjust my cost basis". When this was box was checked, Accrued Market Discount box did show up, but when numbers were entered, the Total Gain was essentially doubled and on top of that, the next screen said that "You will need to mail in your tax return to IRS". BTW, 8949 form in TT 2023 looks quite a bit different from version 2022 and not for the better.
  • Obviously this was completely wrong and then I tried to enter (again, using TT 2023) 1099-B as Individual entries. Using this option now did give me the same options as in 2022 version, where I was able to enter Box 1(f) entry. Interestingly, the description of the box was "Accrued Interest Included in Proceeds (Market Discount)". Once the numbers were entered, the total Capital Gains were correctly adjusted to Zero, but when I looked in form 8949, there was NO ENTRY at all of this line - it was only shown on Schedule B.
Bottom Line at this time - it seems that TurboTax Premier 2023 version is either screwed up with regards to Accrued Market Discount and hopefully will get updated by Intuit soon, or this will not get corrected and the only way to correctly enter things is to manually force it in all the needed forms (which I have done in at least one past version).

Hope this helps others when they encounter this.
Thanks for sharing. I had similar observation that TurboTax moved Accrued Market Discount from Capital gains to Interest Income on Schedule B if I entered trades individually instead of in a summary fashion. I didn't look up form 8949 though.

But my question is: now that TurboTax treats Accrued Market Discount properly, do we need to care if form 8949 has an entry or not? We're paying our due correctly anyway?
cas
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Re: Fidelity showing T-Bills as Capital Gains

Post by cas »

AQ wrote: Mon Feb 12, 2024 12:43 pm
TetrisCollider wrote: Sun Feb 11, 2024 3:27 pm
  • Something just was not looking right in TurboTax 2023, so after reading your reply, I went to my TurboTax 2022 and essentially simulated entering my 2023 entry using 2022 version. Lo and Behold, there was an available box for "My 1099-B has additional boxes checked" and once clicked, gave me an Accrued Market Discount 1(f) box. And after I entered the info, I went directly into Form 8949, which was filled out correctly.
[. . .]

Hope this helps others when they encounter this.
Thanks for sharing. I had similar observation that TurboTax moved Accrued Market Discount from Capital gains to Interest Income on Schedule B if I entered trades individually instead of in a summary fashion. I didn't look up form 8949 though.

But my question is: now that TurboTax treats Accrued Market Discount properly, do we need to care if form 8949 has an entry or not? We're paying our due correctly anyway?
Please note that discussion of TetrisCollider's post has been moved to the "Taxation of Treasury bills, notes and bonds" megathread, so that it can contribute to a concurrent discussion of the same topic over there. Exact link into that point in the discussion: viewtopic.php?p=7709712#p7709712
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Artsdoctor
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Re: Fidelity showing T-Bills as Capital Gains

Post by Artsdoctor »

MisterMister wrote: Mon Feb 12, 2024 12:06 pm
Artsdoctor wrote: Sun Feb 11, 2024 4:54 pm ^ It can get a little bit more challenging when you're selling before maturity date, and notes are handled a little differently than bills. But if you're holding until maturity, then it's pretty straightforward and the 1099s should be easy to figure out.
I received a 1099-B from Fidelity for 2023. ALL of my T-Bill gains (whether the bond was held to maturity or not) were reported as interest. I also had a T-Bill transaction which resulted in a loss and that one was not reported at all.

The "Taxation of Treasury bills, notes and bonds" super-thread had a discussion which (I think decisively) concluded that disposing of T-Bills before maturity might result in a mix of cap gains and interest, and also demonstrated how to calculate the mix. Be that as it may, Fidelity appears to not be using that method for reporting with T-Bills, opting instead for reporting everything as interest.
That super-thread was extremely helpful but it became a bit TOO super for people not getting in from the beginning.

It's going to be advantageous for most investors to use capital gains over interest when there's an opportunity to it. However, the amount will usually be pretty small for most. The time that it comes up is when you sell your T bills on the secondary market for more than the prorated daily rate which has accumulated and it's possible that you'll have to "correct" the 1099 on your tax form.
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Re: Fidelity showing T-Bills as Capital Gains

Post by FactualFran »

MisterMister wrote: Mon Feb 12, 2024 12:06 pm I received a 1099-B from Fidelity for 2023. ALL of my T-Bill gains (whether the bond was held to maturity or not) were reported as interest. I also had a T-Bill transaction which resulted in a loss and that one was not reported at all.

The "Taxation of Treasury bills, notes and bonds" super-thread had a discussion which (I think decisively) concluded that disposing of T-Bills before maturity might result in a mix of cap gains and interest, and also demonstrated how to calculate the mix. Be that as it may, Fidelity appears to not be using that method for reporting with T-Bills, opting instead for reporting everything as interest.
T-Bills are not covered by IRS regulations that require brokerages to report the basis of sales. I don't have any experience with selling T-Bills before maturity, but I suspect that it is up to whoever is preparing an income tax return to determine how much of the difference between the proceeds and purchase price is treated as interest and how much is treated as capital gain.
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Re: Fidelity showing T-Bills as Capital Gains

Post by diy60 »

Artsdoctor wrote: Mon Feb 12, 2024 1:57 pm It's going to be advantageous for most investors to use capital gains over interest when there's an opportunity to it. However, the amount will usually be pretty small for most. The time that it comes up is when you sell your T bills on the secondary market for more than the prorated daily rate which has accumulated and it's possible that you'll have to "correct" the 1099 on your tax form.
Good summary. This has been my experience as well.
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Re: Fidelity showing T-Bills as Capital Gains

Post by MisterMister »

Artsdoctor wrote: Mon Feb 12, 2024 1:57 pm
It's going to be advantageous for most investors to use capital gains over interest when there's an opportunity to it. However, the amount will usually be pretty small for most. The time that it comes up is when you sell your T bills on the secondary market for more than the prorated daily rate which has accumulated and it's possible that you'll have to "correct" the 1099 on your tax form.
Hmm. For T-Bills, as gains are short-term I presume it does not matter in most cases since they are taxed at the same rate as interest income. In fact some might argue the reverse is true since the cap gains can be taxable at the state level (as I recall there's been debate here on that also). This thread https://money.stackexchange.com/questio ... re-maturit had some interesting comments, where one poster writes:

I think there are flaws in broker statements when it comes to things like this especially for bonds. Update: I just got my 1099 from schwab and it shows several t-bills I sold as short term gain. They should have shown it as treasury interest but their explanation is 'That's just how schwab does it'. Now I have to pay Ca state tax on the gain.

But using the rules discussed in the other thread the cap gains portion of my sales would be just a bit over $5.
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Re: Fidelity showing T-Bills as Capital Gains

Post by MisterMister »

FactualFran wrote: Mon Feb 12, 2024 2:13 pm
MisterMister wrote: Mon Feb 12, 2024 12:06 pm I received a 1099-B from Fidelity for 2023. ALL of my T-Bill gains (whether the bond was held to maturity or not) were reported as interest. I also had a T-Bill transaction which resulted in a loss and that one was not reported at all.

The "Taxation of Treasury bills, notes and bonds" super-thread had a discussion which (I think decisively) concluded that disposing of T-Bills before maturity might result in a mix of cap gains and interest, and also demonstrated how to calculate the mix. Be that as it may, Fidelity appears to not be using that method for reporting with T-Bills, opting instead for reporting everything as interest.
T-Bills are not covered by IRS regulations that require brokerages to report the basis of sales. I don't have any experience with selling T-Bills before maturity, but I suspect that it is up to whoever is preparing an income tax return to determine how much of the difference between the proceeds and purchase price is treated as interest and how much is treated as capital gain.
Thanks for that. That's interesting. At least anecdotally, Schwab reports the net proceeds as cap gain (see preceding response). In my case, I don't think I will fight through the manual 1099 work since my federal tax liability is not affected and the resulting cap gains would be tiny.
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Re: Fidelity showing T-Bills as Capital Gains

Post by TetrisCollider »

AQ wrote: Mon Feb 12, 2024 12:43 pm
TetrisCollider wrote: Sun Feb 11, 2024 3:27 pm
cas wrote: Sun Feb 11, 2024 1:56 pm
TetrisCollider wrote: Sun Feb 11, 2024 1:49 pm I am using TurboTax Premier 2023 (Desktop version) and when I enter this 1099-B using Step-by-Step, there are no options provided to identify Accrued Market Discount entries - only Short/Term Capital Gains/Losses. If I switch to Forms, neither on Schedule B or Form 8949, this is not entered as Accrued Market Discount, but as Short Term Capital Gain. So it seems I have to force this entry (Accrued Market Discount) manually using the Forms section, as Step-by-Step does not provide such an option.

Either I am doing something wrong (using the Step-by-Step) or TurboTax did not include this option in the flow or missed it completely (as they have been known to do on multiple occasions).
Here's a post in the Taxation of Treasury bills, notes and bonds megathread where I did a test of how Turbotax handled accrued market discount on a Treasury note/bond: viewtopic.php?p=6966716#p6966716

(Test done in late 2022 with Turbotax 2021, so not the current Turbotax release. I haven't looked to see if Turbotax is still the same for 2023. But in 2022 Turbotax definitely provided a way to handle accrued market discount at the federal level.)
Cas, thank you very much for this. In a way, this actually helped. Here are the details:
  • Something just was not looking right in TurboTax 2023, so after reading your reply, I went to my TurboTax 2022 and essentially simulated entering my 2023 entry using 2022 version. Lo and Behold, there was an available box for "My 1099-B has additional boxes checked" and once clicked, gave me an Accrued Market Discount 1(f) box. And after I entered the info, I went directly into Form 8949, which was filled out correctly.
  • So, now that I knew exactly what to look for in 8949 form, I started playing with TT 2023. First and foremost, the Step-by-Step screens in TT 2023 for 1099-B entries look completely different from 2022 version. When I was entering my 1099-B initially in TT 2023, I picked to enter it as a REPORTED SUMMARY. The only thing that option provided for variations is to check a box named "I need to adjust my cost basis". When this was box was checked, Accrued Market Discount box did show up, but when numbers were entered, the Total Gain was essentially doubled and on top of that, the next screen said that "You will need to mail in your tax return to IRS". BTW, 8949 form in TT 2023 looks quite a bit different from version 2022 and not for the better.
  • Obviously this was completely wrong and then I tried to enter (again, using TT 2023) 1099-B as Individual entries. Using this option now did give me the same options as in 2022 version, where I was able to enter Box 1(f) entry. Interestingly, the description of the box was "Accrued Interest Included in Proceeds (Market Discount)". Once the numbers were entered, the total Capital Gains were correctly adjusted to Zero, but when I looked in form 8949, there was NO ENTRY at all of this line - it was only shown on Schedule B.
Bottom Line at this time - it seems that TurboTax Premier 2023 version is either screwed up with regards to Accrued Market Discount and hopefully will get updated by Intuit soon, or this will not get corrected and the only way to correctly enter things is to manually force it in all the needed forms (which I have done in at least one past version).

Hope this helps others when they encounter this.
Thanks for sharing. I had similar observation that TurboTax moved Accrued Market Discount from Capital gains to Interest Income on Schedule B if I entered trades individually instead of in a summary fashion. I didn't look up form 8949 though.

But my question is: now that TurboTax treats Accrued Market Discount properly, do we need to care if form 8949 has an entry or not? We're paying our due correctly anyway?
AQ, you would think so (no entries in 8949, but interest being reported correctly on Schedule B), but I really don't know and will watch to see if any updates from TT 2023 program between now and say end of March will make any difference in 8949 reporting. I am still waiting for my Schwab 1099-B, so will be testing it out with that one as well. Then I have to do my States and deal with AMD reporting there as well - fun times! :)
For some reason, people that know nothing, seem to know everything...
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Artsdoctor
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Re: Fidelity showing T-Bills as Capital Gains

Post by Artsdoctor »

MisterMister wrote: Mon Feb 12, 2024 3:22 pm
Artsdoctor wrote: Mon Feb 12, 2024 1:57 pm
It's going to be advantageous for most investors to use capital gains over interest when there's an opportunity to it. However, the amount will usually be pretty small for most. The time that it comes up is when you sell your T bills on the secondary market for more than the prorated daily rate which has accumulated and it's possible that you'll have to "correct" the 1099 on your tax form.
Hmm. For T-Bills, as gains are short-term I presume it does not matter in most cases since they are taxed at the same rate as interest income. In fact some might argue the reverse is true since the cap gains can be taxable at the state level (as I recall there's been debate here on that also). This thread https://money.stackexchange.com/questio ... re-maturit had some interesting comments, where one poster writes:

I think there are flaws in broker statements when it comes to things like this especially for bonds. Update: I just got my 1099 from schwab and it shows several t-bills I sold as short term gain. They should have shown it as treasury interest but their explanation is 'That's just how schwab does it'. Now I have to pay Ca state tax on the gain.

But using the rules discussed in the other thread the cap gains portion of my sales would be just a bit over $5.
Many people have carryover losses that they've accumulated (for example, through tax-loss harvesting). Or they may just have a loss from the same year. But if there are none, then your point is well-taken.
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Re: Fidelity showing T-Bills as Capital Gains

Post by IDpilot »

MisterMister wrote: Mon Feb 12, 2024 3:27 pm
FactualFran wrote: Mon Feb 12, 2024 2:13 pm
MisterMister wrote: Mon Feb 12, 2024 12:06 pm I received a 1099-B from Fidelity for 2023. ALL of my T-Bill gains (whether the bond was held to maturity or not) were reported as interest. I also had a T-Bill transaction which resulted in a loss and that one was not reported at all.

The "Taxation of Treasury bills, notes and bonds" super-thread had a discussion which (I think decisively) concluded that disposing of T-Bills before maturity might result in a mix of cap gains and interest, and also demonstrated how to calculate the mix. Be that as it may, Fidelity appears to not be using that method for reporting with T-Bills, opting instead for reporting everything as interest.
T-Bills are not covered by IRS regulations that require brokerages to report the basis of sales. I don't have any experience with selling T-Bills before maturity, but I suspect that it is up to whoever is preparing an income tax return to determine how much of the difference between the proceeds and purchase price is treated as interest and how much is treated as capital gain.
Thanks for that. That's interesting. At least anecdotally, Schwab reports the net proceeds as cap gain (see preceding response). In my case, I don't think I will fight through the manual 1099 work since my federal tax liability is not affected and the resulting cap gains would be tiny.
Vanguard does the same thing as Schwab but as FacrualFran pointed out Vanguard does NOT report the basis of sales to the IRS. That means that when you fill out your Form 8949 you get to compute what amount to put down as the basis and thus the size of the gain or loss. The amount you should put down as the basis of the T-Bills you sold before maturity date is what you paid for it plus how much interest has been earned as of the date you sold it. Here's an example,

$30,000 of 26-week T-Bill bought at auction on 11/10/2022 for 29,319.02 and sold on 5/3/2023 for 29,975.00. Vanguards 1099-B shows this as a short-term gain of 655.98 (29,975.00 - 29,319.02). The 1099-B also clearly shows this as a noncovered transaction with the basis NOT provided to the IRS.

The acquisition discount for this bond is 680.98 (30,000 - 29,319.02). The bond was 174 days old at the time of sale so it had earned 174/(26*7) of the acquisition discount 651.05 (680.98 * 174/182). Thus, the basis is 29,970.07 (29,319.02 + 651.05).

End result is a short-term capital gain of 4.93 showing on the Form 8949. You also must enter earned acquisition discount of 651.05 on your schedule B as interest income.
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Re: Fidelity showing T-Bills as Capital Gains

Post by MisterMister »

^ In my case (Fidelity's 1099), the 1099-B had NO entries for the non-covered transactions (T-bills). I understand and agree with your math but I loathe augmenting or making adjustments to downloaded 1099's unless absolutely necessary. With no available guidance from my state on this scenario and no impact to my federal liability either way, I won't do it. It seems Vanguard/Schwab customers may have a more difficult decision.
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