Taxation of Treasury bills, notes and bonds

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Kevin M
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

The exact details of how you enter the USGO portion of a fund's income for a 1099-DIV depends on your tax software. I posted a short answer about how to do it with HR Block tax software earlier in the thread in this post. I found it by searching this thread for "HR Block".
If I make a calculation error, #Cruncher probably will let me know.
stevew7
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Re: Taxation of Treasury bills, notes and bonds

Post by stevew7 »

After reading about the complexities of dealing with accrued interest and accrued market discounts on my tax return, I thought skipping the secondary market and buying US treasury bonds at auction would bypass all the complexity.

Unfortunately I missed that some of the 20 year bonds I purchased in Oct 2023 (CUSIP 912810TU2) were during an auction that sold "re-opened" bonds (and I did not receive any coupon payments in 2023), so my Vanguard 1099-INT has a non zero value for a line item:

The following amounts are not reported to the IRS. They are presented here for your reference when preparing your tax return(s).

Taxable accrued Treasury interest paid <a positive number>

And in the 1099 "detail" section, there is a negative number with the transaction type listed as "Treasury accrued interest pd" but this negative number matches the "taxable accrued treasury interest paid" earlier in the 1099-int.

So based on this other thread and from what I could pick through on this thread (viewtopic.php?t=271391), is it correct to say I do NOTHING with the taxable accrued treasury interest paid this tax year, but next year in 2024 when I receive my first interest payment from this treasury bond, I would SUBTRACT out the "accrued treasury interest paid" that showed up on this year's 2023 1099-DIV on my 2024 return?
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Re: Taxation of Treasury bills, notes and bonds

Post by Artsdoctor »

stevew7 wrote: Tue Jan 30, 2024 4:34 pm After reading about the complexities of dealing with accrued interest and accrued market discounts on my tax return, I thought skipping the secondary market and buying US treasury bonds at auction would bypass all the complexity.

Unfortunately I missed that some of the 20 year bonds I purchased in Oct 2023 (CUSIP 912810TU2) were during an auction that sold "re-opened" bonds (and I did not receive any coupon payments in 2023), so my Vanguard 1099-INT has a non zero value for a line item:

The following amounts are not reported to the IRS. They are presented here for your reference when preparing your tax return(s).

Taxable accrued Treasury interest paid <a positive number>

And in the 1099 "detail" section, there is a negative number with the transaction type listed as "Treasury accrued interest pd" but this negative number matches the "taxable accrued treasury interest paid" earlier in the 1099-int.

So based on this other thread and from what I could pick through on this thread (viewtopic.php?t=271391), is it correct to say I do NOTHING with the taxable accrued treasury interest paid this tax year, but next year in 2024 when I receive my first interest payment from this treasury bond, I would SUBTRACT out the "accrued treasury interest paid" that showed up on this year's 2023 1099-DIV on my 2024 return?
Accrued interest amounts are not reported to the IRS. Your bond will pay interest in August and in February, so if you bought the bond in October, you've not had any coupon payments yet. You'll need to file away the accrued interest you paid when you purchased the bond and then subtract that amount on your 2024 Schedule B when you file next year. Make sure that you keep track of that because you'll probably not get any documentation of the accrued interest on next year's 1099 to remind you.
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

stevew7 wrote: Tue Jan 30, 2024 4:34 pm After reading about the complexities of dealing with accrued interest and accrued market discounts on my tax return, I thought skipping the secondary market and buying US treasury bonds at auction would bypass all the complexity.

Unfortunately I missed that some of the 20 year bonds I purchased in Oct 2023 (CUSIP 912810TU2) were during an auction that sold "re-opened" bonds (and I did not receive any coupon payments in 2023), so my Vanguard 1099-INT has a non zero value for a line item:

The following amounts are not reported to the IRS. They are presented here for your reference when preparing your tax return(s).

Taxable accrued Treasury interest paid <a positive number>

And in the 1099 "detail" section, there is a negative number with the transaction type listed as "Treasury accrued interest pd" but this negative number matches the "taxable accrued treasury interest paid" earlier in the 1099-int.

So based on this other thread and from what I could pick through on this thread (viewtopic.php?t=271391), is it correct to say I do NOTHING with the taxable accrued treasury interest paid this tax year, but next year in 2024 when I receive my first interest payment from this treasury bond, I would SUBTRACT out the "accrued treasury interest paid" that showed up on this year's 2023 1099-DIV on my 2024 return?
This has been discussed a lot in this thread, but I know it's hard to find things.

If I have more interest reported on the 1099-INT than the accrued interest paid, I subtract the accrued interest paid for the tax year in which it was paid, regardless of whether or not I received a coupon for that particular bond. If I don't, I make a note of it in my income tax spreadsheet, and deduct it the following tax year.

I will buy you a beer if you do what I do and ever have it challenged in an IRS audit. :sharebeer
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Re: Taxation of Treasury bills, notes and bonds

Post by Doc »

Kevin M wrote: Wed Jan 31, 2024 10:32 am I will buy you a beer if you do what I do and ever have it challenged in an IRS audit.
Is the cost of that beer tax deductible? :D
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Re: Taxation of Treasury bills, notes and bonds

Post by Bwinner »

Kevin M wrote: Tue Nov 15, 2022 7:26 pm Treasury notes and bonds are more complicated because they pay interest semi-annually (coupon payments), and there also can be a market discount or premium when you buy...

Accrued market discount is reported by the broker as an adjustment to capital gains in box 1f of 1099-B for the year in which the security is disposed of (sold or matures). This accrued market discount is entered as interest by the tax preparer on Schedule B. There is some debate as to whether accrued market discount is exempt from state and local income tax. It may vary by state.
My post is specific to reporting in FreeTaxUSA 2023 the state-tax exclusion of accrued market discount of Treasury Notes sold on the secondary market. It may also be of interest to NJ residents.

In July 2022, I bought Treasury Notes on the secondary market, selling them April 2023 on the secondary market prior to maturity. The transactions are documented on Schwab 1099-B. I successfully recorded these sales in FreeTaxUSA 2023 under "Stocks or Investments Sold (1099-B)." I selected “Do you have adjustments to this investment sale?” = Yes and checked the box “There is an amount on Box 1f, Accrued Market Discount.” This categorized the accrued market discount as interest income now recorded on Schedule B: Part I as “Capital gains accrued market discount.” Satisfied with the federal return, now I was challenged how to report this amount as Tax-exempt interest income on NJ 1040, Line 16b as it was included in Line 16a Taxable interest income.

I posted to the FreeTaxUSA support center with all the detail above, asking how to categorize the Treasury Interest as nontaxable. There was some back and forth with one response stating it was ordinary interest income taxable in NJ. I persisted, stating all interest and capital gains on Treasures is nontaxable in NJ per Nontaxable Investment Income page 6, requesting references supporting the position it should be taxable. Thursday I received this response.

"Thank you for your patience as I looked into this. I have discussed this with our New Jersey specialist, and we have determined that you are correct, and that amount should not be taxable on your New Jersey return. That being said, our software does not support reporting interest from the 1099-B and having that interest show up as tax exempt on your New Jersey return. The only way to populate an amount on the New Jersey return in Box 16b is through the 1099-INT screen or the 1099-DIV screen. You can still e-file your federal return with us if you would like, but unfortunately, we will not be able to prepare the New Jersey return correctly to reflect that tax-exempt interest income. I'm very sorry for the inconvenience. We are looking at making the necessary changes to support this next year."

I will still use FreeTaxUSA 2023 to e-file federally. I will complete my NJ return manually, as I am not clever enough to trick the software into making the Treasury interest nontaxable in NJ. I appreciate FreeTaxUSA responded to my issue quickly, took my responses seriously, investigated thoroughly, and acknowledged the issue with their software. They also provided me with a service code so producing their state return won't cost me anything. I can still use it as reference in preparing my return manually.

Thank you to Kevin M who created this thread and all who have contributed. I've been an investor and done my own taxes for 40 years. When I bought and sold my first Treasuries, I naively assumed the tax reporting would be simple. Upon researching the topic and reading through this (now) 16-page thread, I was gobsmacked by the complexity. Your expertise and shared knowledge are greatly appreciated!
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Re: Taxation of Treasury bills, notes and bonds

Post by exodusing »

This is how I handled accrued market discount on a treasury note in TurboTax:

I imported the 1099-B from Vanguard. The note was recorded as stock rather than bond, so I had to correct that. Box 1a starts with QUANTITYsh, which seems an odd way to describe it. The accrued market discount was correctly recorded from Box 1f.

I then went to the NY return, Investment adjustments - Exempt income from US government or exempt by NY law. Clicking through the heading is Investment Income from US Government Agencies. There's a box to enter US Government Interest in which I entered the amount of accrued market discount.
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Re: Taxation of Treasury bills, notes and bonds

Post by jeffyscott »

Bwinner wrote: Sat Feb 03, 2024 4:57 am I will still use FreeTaxUSA 2023 to e-file federally. I will complete my NJ return manually, as I am not clever enough to trick the software into making the Treasury interest nontaxable in NJ. I appreciate FreeTaxUSA responded to my issue quickly, took my responses seriously, investigated thoroughly, and acknowledged the issue with their software. They also provided me with a service code so producing their state return won't cost me anything. I can still use it as reference in preparing my return manually.
As noted above, don't you have to manually enter the state tax exempt interest somewhere?

I have not used FreeTaxUSA, but my recollection with what I have used (Credit Karma tax and Cash App tax the past few years) is that there was a manual for interest from US government securities when doing the state form. This had to be manually calculated because some of it was a percentage of bond fund or money market interest. I can't imagine that any software has the ability to automatically extract what percentage of interest from VMFXX, for example, is from US Government securities, so would think this always must be manually calculated and entered :?: .
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Re: Taxation of Treasury bills, notes and bonds

Post by s.todd »

I am asking because I am trying to project my tax liability for this year before the end of the year.

This is AMAZINGLY helpful and I am going to copy it over to my tax file immediately.

Am glad to hear that this is relatively easy in TT as that is the program I use.

I cannot thank you enough for this detailed explanation. I hope somewhere someone is as helpful to you.
Ditto - THANK YOU.
And thank you Kevin for all your info and starting this thread.
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AQ
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Re: Taxation of Treasury bills, notes and bonds

Post by AQ »

My dreaded question from buying Treasury bonds on secondary market came...

I bought a Treasury bond in 2022 with a heavy discount (rates were rising big). I kept it until the bond matured in 2023. Now Fidelity put this bond in its 1099-B, and a big number in Box for Accrued Market Discount, which is also included as part of long term capital gains (I held it over a year).

For Fed tax, I guess it doesn't matter, perhaps even better for me since I'll pay long term capital gain tax instead of income tax?

But this way I have to pay State tax then (California)? I would think this so-called Accrued Market Discount is part of my interest income, and thus exempt from state tax. How could I make it work? (I'm using TurboTax)

I went through this thread a few times (though not thoroughly). There were some discussions about this issue but seems no a clear answer yet? Or is it fair to say that this is one of those issues without a consensus?
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Re: Taxation of Treasury bills, notes and bonds

Post by FactualFran »

AQ wrote: Sat Feb 10, 2024 12:05 pm For Fed tax, I guess it doesn't matter, perhaps even better for me since I'll pay long term capital gain tax instead of income tax?

But this way I have to pay State tax then (California)? I would think this so-called Accrued Market Discount is part of my interest income, and thus exempt from state tax. How could I make it work? (I'm using TurboTax)
TurboTax will very likely do the right things:
  • Include a Form 8949 with the income tax return that has the data from the 1099-B.
  • On the Form 8949 have an adjustment with code D (in column (f)) and the accrued market discount (in column (g)) that reduces the gain by the accrued market discount.
  • Include the accrued market discount amount in the interest reported on Schedule B of the income tax return.
Be sure to tell TurboTax that the accrued marked discount is from a U.S. Government obligation that should not be included in the taxable income of the State.
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Re: Taxation of Treasury bills, notes and bonds

Post by IDpilot »

FactualFran wrote: Sat Feb 10, 2024 2:15 pm
AQ wrote: Sat Feb 10, 2024 12:05 pm For Fed tax, I guess it doesn't matter, perhaps even better for me since I'll pay long term capital gain tax instead of income tax?

But this way I have to pay State tax then (California)? I would think this so-called Accrued Market Discount is part of my interest income, and thus exempt from state tax. How could I make it work? (I'm using TurboTax)
TurboTax will very likely do the right things:
  • Include a Form 8949 with the income tax return that has the data from the 1099-B.
  • On the Form 8949 have an adjustment with code D (in column (f)) and the accrued market discount (in column (g)) that reduces the gain by the accrued market discount.
  • Include the accrued market discount amount in the interest reported on Schedule B of the income tax return.
Be sure to tell TurboTax that the accrued marked discount is from a U.S. Government obligation that should not be included in the taxable income of the State.
Be sure to take a close look at your 1099-B to see if Fidelity treated these transactions as covered or noncovered. In other words, did Fidelity report the cost or other basis to the IRS or not. If they did, then FactualFran's process sounds right. If they didn't, then you can adjust the basis to include the accrued market discount and not have to mess with the column(f) codes.
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Re: Taxation of Treasury bills, notes and bonds

Post by Hebell »

For those looking for tax treatment in the state of Minnesota, the web page link is here:

https://www.revenue.state.mn.us/us-g ... nterest

You'll see the OID is subtracted/ exempt.
As to implementing it in turbotax, I'll be doing it this week.
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Re: Taxation of Treasury bills, notes and bonds

Post by AQ »

IDpilot wrote: Sun Feb 11, 2024 10:56 am
FactualFran wrote: Sat Feb 10, 2024 2:15 pm
AQ wrote: Sat Feb 10, 2024 12:05 pm For Fed tax, I guess it doesn't matter, perhaps even better for me since I'll pay long term capital gain tax instead of income tax?

But this way I have to pay State tax then (California)? I would think this so-called Accrued Market Discount is part of my interest income, and thus exempt from state tax. How could I make it work? (I'm using TurboTax)
TurboTax will very likely do the right things:
  • Include a Form 8949 with the income tax return that has the data from the 1099-B.
  • On the Form 8949 have an adjustment with code D (in column (f)) and the accrued market discount (in column (g)) that reduces the gain by the accrued market discount.
  • Include the accrued market discount amount in the interest reported on Schedule B of the income tax return.
Be sure to tell TurboTax that the accrued marked discount is from a U.S. Government obligation that should not be included in the taxable income of the State.
Be sure to take a close look at your 1099-B to see if Fidelity treated these transactions as covered or noncovered. In other words, did Fidelity report the cost or other basis to the IRS or not. If they did, then FactualFran's process sounds right. If they didn't, then you can adjust the basis to include the accrued market discount and not have to mess with the column(f) codes.
FactualFran's process makes a lot of sense. I believe I got it. Thanks! Fidelity treated my transactions as covered.

The challenge for me is: how to literally have TurboTax execute FactualFran's...
AQ
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Re: Taxation of Treasury bills, notes and bonds

Post by AQ »

Hebell wrote: Sun Feb 11, 2024 11:24 am For those looking for tax treatment in the state of Minnesota, the web page link is here:

https://www.revenue.state.mn.us/us-g ... nterest

You'll see the OID is subtracted/ exempt.
As to implementing it in turbotax, I'll be doing it this week.
Would highly appreciate it if you can share how you implement it in turbotax with the fed tax part as well. Thanks!
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Re: Taxation of Treasury bills, notes and bonds

Post by AQ »

Kevin M wrote: Wed Nov 16, 2022 12:07 pm
The way I've done this with tax software is to create a dummy 1099-INT and enter the interest in it. You would enter it into either box 1 or box 3 of the dummy 1099-INT, depending on whether or not the accrued interest is exempt from state and local income tax. As I recall, I entered it in box 3. I am a CA resident.

Kevin
@Kevin, is the following what your approach is as described in quoted comments above?

Let's say as an example I bought a Treasury bond with $950. At maturity it's redeemed at $1,000. The 1099-B would report 1F (i.e. AMD) $50.

If I understand you correctly, for tax software, you either enter a 1099-B with an adjusted basis $1,000, so no capital gain/loss. Or simply ignore this trade on 1099-B altogether. (which way did you choose?)

Then create a 'dummy' 1099-INT, place $50 on Box 3, and then enter a 1099-INT on the software.

This way, AMD of $50 would not be treated as a capital gain/loss, but show up on Schedule B. (how should I put the payer's name, US treasury?)

It's clear that we've paid our tax due with this approach, but does a dummy 1099-INT raise a red flag from IRS or state tax authority since it's not a real form issued by anyone? Or as long as we pay our due there is nothing to worry about?

Many thanks!
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Accrued Market Discount

Post by NavyIC3 »

[Thread merged into here --admin LadyGeek]

This from Fido 1099-B. I am using TT Download. I believe this entry requires an adjustment. Can anyone help out with how to fill in the form?


1a UNITED STATES TREAS SER BF-2023 0.12500%, 91282CCU3
Action Redemption
Quantity 200,000.
1b Date Acquired 09/07/22
1c Date Sold or Disposed 08/31/23
1d Proceeds 200,000.
1e Cost or Other Basis (b) 193,514.
1f Accrued Market Discount 6,486.
1g Wash Sale Loss Disallowed
Gain/Loss (-) 6,486.
4 Federal Income Tax Withheld
14 State
16 State Tax Withheld
Swansea
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Turbo Tax not deducting federal bond income from state income

Post by Swansea »

[Thread merged into here --admin LadyGeek]

I uploaded the 1099Ds forms into TT, but my gross income for state did not subtract federal obligations income.
The state of Maryland has a line for subtracting the income but I can figure out how to edit it. I know the % needed adjust the totals on the forms.
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Re: Turbo Tax not deducting federal bond income from state income

Post by jebmke »

Sounds like the Federal interview was not completed correctly. Almost every package I have used provides a mechanism to designate the US dividends/interest on the Federal interview since each state package can then take this info and adjust accordingly.

I know HRB does it - although I think they also provide a way to make the adjustment in the MD return (I'm a MD filer but it is easy enough for me to enter in FED since I have the number I'd use in State anyway.)

I'd go back to the FED module and see if something was missed in the interview process.
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Re: Turbo Tax not deducting federal bond income from state income

Post by Kagord »

Assuming you're talking about treasury notes/bills, there is no allocation, what I've done, when I've had both treasury and corporate accrued interest that had different state tax treatment, adjust all line items for the specific treasury instruments out from the existing 1099, and enter a 2nd 1099 just with the information that needs different state tax treatment, ensuring that everything rolls up the same on the federal return.

edits: not sure this applies to, the other posts on this thread may be more relevant, but I remembered doing this a few times for the accrued interest.
Last edited by Kagord on Mon Feb 12, 2024 9:01 am, edited 2 times in total.
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Re: Turbo Tax not deducting federal bond income from state income

Post by joe-kr »

Swansea wrote: Mon Feb 12, 2024 8:43 am I uploaded the 1099Ds forms into TT, but my gross income for state did not subtract federal obligations income.
The state of Maryland has a line for subtracting the income but I can figure out how to edit it. I know the % needed adjust the totals on the forms.
On my download software version, it works like this: You do this in the Federal tax section. Edit your dividends, then click continue.

It should ask about the federal ID number, click continue, then you should see a list of situations, click the box for “A portion of these dividends is US Gov Interest”
Click continue and enter the percentage that is US Gov obligations. This will then carry over to the state section.
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Re: Taxation of Treasury bills, notes and bonds

Post by LadyGeek »

I merged Swansea's and NavyIC3's threads into the ongoing discussion.

(Thanks to the member who reported the post and provided a link to this thread.)
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Swansea
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Re: Turbo Tax not deducting federal bond income from state income

Post by Swansea »

joe-kr wrote: Mon Feb 12, 2024 8:55 am
Swansea wrote: Mon Feb 12, 2024 8:43 am I uploaded the 1099Ds forms into TT, but my gross income for state did not subtract federal obligations income.
The state of Maryland has a line for subtracting the income but I can figure out how to edit it. I know the % needed adjust the totals on the forms.
On my download software version, it works like this: You do this in the Federal tax section. Edit your dividends, then click continue.

It should ask about the federal ID number, click continue, then you should see a list of situations, click the box for “A portion of these dividends is US Gov Interest”
Click continue and enter the percentage that is US Gov obligations. This will then carry over to the state section.
Great, worked like a charm. Thank you very much!
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

AQ wrote: Sun Feb 11, 2024 7:03 pm
Kevin M wrote: Wed Nov 16, 2022 12:07 pm
The way I've done this with tax software is to create a dummy 1099-INT and enter the interest in it. You would enter it into either box 1 or box 3 of the dummy 1099-INT, depending on whether or not the accrued interest is exempt from state and local income tax. As I recall, I entered it in box 3. I am a CA resident.

Kevin
@Kevin, is the following what your approach is as described in quoted comments above?

Let's say as an example I bought a Treasury bond with $950. At maturity it's redeemed at $1,000. The 1099-B would report 1F (i.e. AMD) $50.

If I understand you correctly, for tax software, you either enter a 1099-B with an adjusted basis $1,000, so no capital gain/loss. Or simply ignore this trade on 1099-B altogether. (which way did you choose?)

Then create a 'dummy' 1099-INT, place $50 on Box 3, and then enter a 1099-INT on the software.

This way, AMD of $50 would not be treated as a capital gain/loss, but show up on Schedule B. (how should I put the payer's name, US treasury?)

It's clear that we've paid our tax due with this approach, but does a dummy 1099-INT raise a red flag from IRS or state tax authority since it's not a real form issued by anyone? Or as long as we pay our due there is nothing to worry about?

Many thanks!
If you search this thread for "accrued market discount" you'll see the discussions about it. Here's one of the replies that comes up in the search results that I think covers it fairly well.

Summary:
  • You do enter the 1099-B.
  • You enter the basis shown on the 1099-B.
  • You enter the lesser of accrued market discount or capital gain as an adjustment.
  • With HRBlock, you enter a dummy 1099-INT to report the adjustment amount as interest. For Treasuries, I enter it in box 3 so it's deducted from state income tax.
  • TurboTax users have reported that a dummy 1099-INT is not required, since TT reports the interest for you on Schedule B. However, I don't recall seeing a report of how to get TT to subtract the ACM as US government interest on the state tax return.
With HRB, the dummy 1099-INT is just a way to get the interest onto Schedule B, which I think is all the tax authorities care about. I've used dummy 1099-INT forms for various purposes, and it's never been an issue.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Taxation of Treasury bills, notes and bonds

Post by TetrisCollider »

See this thread as well - TurboTax 2023 Accrued Market Discount Info lower in the thread.
For some reason, people that know nothing, seem to know everything...
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Re: Taxation of Treasury bills, notes and bonds

Post by Beachey »

exodusing wrote: Sat Feb 03, 2024 6:53 am This is how I handled accrued market discount on a treasury note in TurboTax:

I imported the 1099-B from Vanguard. The note was recorded as stock rather than bond, so I had to correct that. Box 1a starts with QUANTITYsh, which seems an odd way to describe it. The accrued market discount was correctly recorded from Box 1f.

I then went to the NY return, Investment adjustments - Exempt income from US government or exempt by NY law. Clicking through the heading is Investment Income from US Government Agencies. There's a box to enter US Government Interest in which I entered the amount of accrued market discount.
In FREETAX USA, there is a very similar section for New York State where I can Check "Certain investment income exempted by other New York State laws" and subtract out the accrued market discount. Interesting that the New Jersey State version is different.

However I have a related question, when I check and enter Box 1f, Accrued market discount, there is a follow-up question "Is this a partial payment of principal on a bond?" I think the answer is NO? When would this answer be YES? Does anyone know what the question is for? Does not seem to affect my amount owed.
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

TetrisCollider wrote: Mon Feb 12, 2024 10:18 am See this thread as well - TurboTax 2023 Accrued Market Discount Info lower in the thread.
That thread is a bit of a mess. The original post in that thread is about T bills; there is no accrued market discount for Tbills--there is accrued acquisition discount, and bills are handled completely differently than notes or bonds (see the OP of this thread).

Then the thread veers off topic into accrued market discount, and in that discussion there are several links back to this thread, including one that details handling AMD in Turbo Tax. TetrisCollider did post something that could help TT users avoid some confusion; I'll repost it here so we have that info in this thread too:
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.
If I make a calculation error, #Cruncher probably will let me know.
SuperDave
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State Taxation of Treasury Interest With Accrued Interest Paid

Post by SuperDave »

[Thread merged into here by Moderator Misenplace]
I have a question regarding the state taxation (MA) of treasury interest specifically with accrued interest paid. I have perused the "Taxation of Treasury bills, notes, and bonds" thread and did not see this discussed. One key point I did take from that thread is that Federal Law prohibits states from taxation of treasury interest. In short, the question is: am I required to tell the state about the accrued interest that I paid to the seller of the T-Note thus increasing my state taxes (by lowering the treasury interest exclusion amount).

So here is the scenario: Do my federal taxes, 1099-INT Box 3 has the total amount, using TurboTax, check adjust taxable amount, enter the adjustment amount for the accrued interest paid - all of this works as expected. Schedule B Part I has the accrued interest subtraction. TurboTax then carries this over to the state tax Schedule B MA Interest Income Worksheet with the accrued interest adjustment. So, the question is, should I remove the accrued interest adjustment on the MA Schedule B Worksheet. If no, does this not result in the state taxing treasury interest? This is a fine point, I was paid by the treasury the full amount, I personally paid the seller the accrued interest.

Thanks
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Re: State Taxation of Treasury Interest With Accrued Interest Paid

Post by ofckrupke »

SuperDave wrote: Mon Feb 12, 2024 12:38 pm In short, the question is: am I required to tell the state about the accrued interest that I paid to the seller of the T-Note thus increasing my state taxes (by lowering the treasury interest exclusion amount).
Sure. Jumping to your point at the end which I haven't cited below: the state-tax exclusion doesn't depend on who paid the interest as long as it was on treasury debt obligations. So it's nettable in an apples/apples sense. So take the exclusion from state taxation only for the net treasury interest received.

Look at the question this way: if not obliged to net the treasury interest then everybody and their sibling in high-taxing states would be, you know, backing the truck up: buying treasury notes and bonds (on margin!) just before coupon dates, collecting the coupon, selling the security, rinse, repeat, and sticking their governors massively by claiming an income adjustment on the gross coupon income. Everyone would know about it. You would already have read about it. The impact on market pricing of treasuries and state-exempt agencies immediately before and after coupon dates would be well known and a topic of advice for people in all states concerning the timing of transactions in these securities. None of which exists, because you can't do that.
 
SuperDave wrote: Mon Feb 12, 2024 12:38 pm TurboTax then carries this over to the state tax Schedule B MA Interest Income Worksheet with the accrued interest adjustment. So, the question is, should I remove the accrued interest adjustment on the MA Schedule B Worksheet.
Haven't done MA taxes, but it sounds like the software actually does the right thing in the first place without having to be tricked into doing so, which is good to hear. But I wonder what happens when one's federal Schedule B accrued interest paid contains nonzero portions from both state-exempt and state-nonexempt debt securities?
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Re: Taxation of Treasury bills, notes and bonds

Post by AQ »

Kevin M wrote: Mon Feb 12, 2024 10:05 am
AQ wrote: Sun Feb 11, 2024 7:03 pm
Kevin M wrote: Wed Nov 16, 2022 12:07 pm
The way I've done this with tax software is to create a dummy 1099-INT and enter the interest in it. You would enter it into either box 1 or box 3 of the dummy 1099-INT, depending on whether or not the accrued interest is exempt from state and local income tax. As I recall, I entered it in box 3. I am a CA resident.

Kevin
@Kevin, is the following what your approach is as described in quoted comments above?

Let's say as an example I bought a Treasury bond with $950. At maturity it's redeemed at $1,000. The 1099-B would report 1F (i.e. AMD) $50.

If I understand you correctly, for tax software, you either enter a 1099-B with an adjusted basis $1,000, so no capital gain/loss. Or simply ignore this trade on 1099-B altogether. (which way did you choose?)

Then create a 'dummy' 1099-INT, place $50 on Box 3, and then enter a 1099-INT on the software.

This way, AMD of $50 would not be treated as a capital gain/loss, but show up on Schedule B. (how should I put the payer's name, US treasury?)

It's clear that we've paid our tax due with this approach, but does a dummy 1099-INT raise a red flag from IRS or state tax authority since it's not a real form issued by anyone? Or as long as we pay our due there is nothing to worry about?

Many thanks!
If you search this thread for "accrued market discount" you'll see the discussions about it. Here's one of the replies that comes up in the search results that I think covers it fairly well.

Summary:
  • You do enter the 1099-B.
  • You enter the basis shown on the 1099-B.
  • You enter the lesser of accrued market discount or capital gain as an adjustment.
  • With HRBlock, you enter a dummy 1099-INT to report the adjustment amount as interest. For Treasuries, I enter it in box 3 so it's deducted from state income tax.
  • TurboTax users have reported that a dummy 1099-INT is not required, since TT reports the interest for you on Schedule B. However, I don't recall seeing a report of how to get TT to subtract the ACM as US government interest on the state tax return.
With HRB, the dummy 1099-INT is just a way to get the interest onto Schedule B, which I think is all the tax authorities care about. I've used dummy 1099-INT forms for various purposes, and it's never been an issue.
@Kevin, this is tremendously helpful. Thanks for your nice summary and of course starting this thread.

btw, does anyone know how to search a megathread like this one? Right now I do it one page by one page with a keyword. With 16 pages and growing it's painfully tedious ..
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Re: Taxation of Treasury bills, notes and bonds

Post by jeffyscott »

AQ wrote: Mon Feb 12, 2024 2:45 pm btw, does anyone know how to search a megathread like this one? Right now I do it one page by one page with a keyword. With 16 pages and growing it's painfully tedious ..
There's a "search this discussion" box near the top of the page.
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Re: Taxation of Treasury bills, notes and bonds

Post by AQ »

jeffyscott wrote: Mon Feb 12, 2024 2:59 pm
AQ wrote: Mon Feb 12, 2024 2:45 pm btw, does anyone know how to search a megathread like this one? Right now I do it one page by one page with a keyword. With 16 pages and growing it's painfully tedious ..
There's a "search this discussion" box near the top of the page.
Thanks!! I'm on this forum for >10 years and didn't know this function right there :?
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Re: Taxation of Treasury bills, notes and bonds

Post by Misenplace »

I merged SuperDave's topic into the ongoing discussion.

(Thanks to the member who reported the post and provided a link to this thread.)
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Re: Taxation of Treasury bills, notes and bonds

Post by AQ »

A data point about entering Accrued Market Discount for State tax filing. I'm using TurboTax 2023 Home&Business.

I bought 2 Treasury bonds on secondary market and held to maturity. Fidelity 1099B reports the difference between purchase price & par as AMD.

TT offers two ways to enter 1099B. The 'summary' approach won't work for AMD. So I entered the numbers for trades one by one. There is a button you could select to enter AMD to box 1F. Then TT will report capital gain = 0 on form 8949, and AMD as interest income on Schedule B. So no dummy 1099-INT needed.

However, the State tax part doesn't treat this AMD as government obligations and charge me state tax (I'm a CA resident).

When I played State Tax part, there is a radio 'Interest/Divdend adjustment' under heading 'Investment'. But none seem fitting what I needed to do. After hitting 'continue' there is a catch-all screen 'other adjustment' where we can make 'subtraction' or 'addition' to Interest. I entered AMD there and bingo, my state tax reduced respectively.

Not sure if this is the proper way but it's one way to get the tax amount right.

p.s. I always hesitate to manually work on FORM mode and prefer to get things done with 'step-by-step'. Whenever I manually edit a tax form, TT always asks me to mail materials to IRS and sometimes not let me do e-filing..
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

AQ wrote: Mon Feb 12, 2024 5:06 pm A data point about entering Accrued Market Discount for State tax filing. I'm using TurboTax 2023 Home&Business.

I bought 2 Treasury bonds on secondary market and held to maturity. Fidelity 1099B reports the difference between purchase price & par as AMD.

TT offers two ways to enter 1099B. The 'summary' approach won't work for AMD. So I entered the numbers for trades one by one. There is a button you could select to enter AMD to box 1F. Then TT will report capital gain = 0 on form 8949, and AMD as interest income on Schedule B. So no dummy 1099-INT needed.

However, the State tax part doesn't treat this AMD as government obligations and charge me state tax (I'm a CA resident).

When I played State Tax part, there is a radio 'Interest/Divdend adjustment' under heading 'Investment'. But none seem fitting what I needed to do. After hitting 'continue' there is a catch-all screen 'other adjustment' where we can make 'subtraction' or 'addition' to Interest. I entered AMD there and bingo, my state tax reduced respectively.

Not sure if this is the proper way but it's one way to get the tax amount right.

p.s. I always hesitate to manually work on FORM mode and prefer to get things done with 'step-by-step'. Whenever I manually edit a tax form, TT always asks me to mail materials to IRS and sometimes not let me do e-filing..
Based on other posts we've seen, this seems to be the way to do it with TT. In a way, it's easier with HRB, since when I enter the dummy 1099-INT, and can put the ACM in box three, and it is automatically excluded from state income. Entering a dummy 1099-INT is super easy.
If I make a calculation error, #Cruncher probably will let me know.
MisterMister
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Re: Taxation of Treasury bills, notes and bonds

Post by MisterMister »

AQ wrote: Mon Feb 12, 2024 5:06 pm
.
.
When I played State Tax part, there is a radio 'Interest/Divdend adjustment' under heading 'Investment'. But none seem fitting what I needed to do. After hitting 'continue' there is a catch-all screen 'other adjustment' where we can make 'subtraction' or 'addition' to Interest. I entered AMD there and bingo, my state tax reduced respectively.

Not sure if this is the proper way but it's one way to get the tax amount right.
.
.
One thing you might want to do is look at the state return and see where/how the interest is excluded. For example, in Illinois, the deduction must be on line 22 of Schedule M; a partial snapshot is shown below. Note that IL-1040 line 1 mentioned in the clip refers to adjusted gross income from your federal return.

Simply asking TT to adjust the interest may not result in the fine level of detail desired.

Image
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Re: Taxation of Treasury bills, notes and bonds

Post by parval »

Sorry if this has been covered, I did search but couldn't find anything:

Is anyone trading on Interactive Brokers (IBKR) and is that handled automatically by TurboTax import?

Specifically I bought US-T GOVT Bills May23'24

If I'm in a high tax state, do I need to do anything when I report on TT next year?
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

parval wrote: Tue Feb 13, 2024 3:07 pm Sorry if this has been covered, I did search but couldn't find anything:

Is anyone trading on Interactive Brokers (IBKR) and is that handled automatically by TurboTax import?

Specifically I bought US-T GOVT Bills May23'24

If I'm in a high tax state, do I need to do anything when I report on TT next year?
Although not specific to IBKR, the general taxation is indeed covered in the OP:
Kevin M wrote: Tue Nov 15, 2022 7:26 pm Treasury bills are the easiest to understand. Say you pay $990 for $1,000 of face value (this is the minimum at a broker). At maturity you'll receive $1,000; $10 of this will be reported as interest in box 3 of 1099-INT for the year of maturity. IRS publications refer to this $10 as accrued acquisition discount.

Treasury bill interest (accrued acquisition discount) is exempt from state and local income tax, as is anything reported in box 3 of 1099-INT. All of this is true whether you buy at auction or on the secondary market.
So the 1099-INT you receive from IBKR should comply with this. TT automatically excludes USGO reported in box 3 of 1099-INT from state income taxes.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Taxation of Treasury bills, notes and bonds

Post by parval »

Kevin M wrote: Tue Feb 13, 2024 4:16 pm
parval wrote: Tue Feb 13, 2024 3:07 pm Sorry if this has been covered, I did search but couldn't find anything:

Is anyone trading on Interactive Brokers (IBKR) and is that handled automatically by TurboTax import?

Specifically I bought US-T GOVT Bills May23'24

If I'm in a high tax state, do I need to do anything when I report on TT next year?
Although not specific to IBKR, the general taxation is indeed covered in the OP:
Kevin M wrote: Tue Nov 15, 2022 7:26 pm Treasury bills are the easiest to understand. Say you pay $990 for $1,000 of face value (this is the minimum at a broker). At maturity you'll receive $1,000; $10 of this will be reported as interest in box 3 of 1099-INT for the year of maturity. IRS publications refer to this $10 as accrued acquisition discount.

Treasury bill interest (accrued acquisition discount) is exempt from state and local income tax, as is anything reported in box 3 of 1099-INT. All of this is true whether you buy at auction or on the secondary market.
So the 1099-INT you receive from IBKR should comply with this. TT automatically excludes USGO reported in box 3 of 1099-INT from state income taxes.
Ah thank you so much
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1099-INT, Fidelity, Treasury accrued interest, HRBlock

Post by Kevin M »

EDIT. In working on something else, I ran across the accrued interest paid in 2022 in my tax spreadsheet that I was not able to deduct on my 2022 return, which I had forgotten about. I modified the steps below to include it.

Just entered my Fidelity interest, all of which was Treasury interest (USGO), into HRB 1099-INT. Some of the Treasuries I bought in 2023 were notes or bonds on which I paid accrued interest. Per the edit note above, I had purchased Treasuries in 2022, and paid accrued interest that I was not able to deduct on my 2022 return. I had noted this amount in my income tax spreadsheet. Below are the steps I followed to enter this all into the 1099-INT form in the HRBlock tax software.
  1. Downloaded the Fidelity 1099-consolidated tax doc for this account.
  2. Scrolled to the end of the 1099-Consolidated to find Accrued Interest Paid on Purchases in the 2023 SUPPLEMENTAL INFORMATION section. Entered the total accrued interest paid in 2023 into my tax spreadsheet, on the row below the the accrued interest paid in 2022 that I was not able to deduct for 2022. No, I did not check to verify that I received a coupon for every bond listed in the 1099 accrued interest section.
  3. In the spreadsheet row below, calculated the sum of the accrued interest paid in 2022 and 2023.
  4. In the interest income interview section of HRB, imported tax forms from Fidelity, which included the 1099-INT.
  5. Opened the 1099-INT from NATIONAL FINANCIAL SERVICES LLC (deleted the empty one from last year), and verified that the amount in Box 3, which was all there was, matched the 1099-INT box 3 amount in the 1099-Consolidated tax doc provided by Fido.
  6. At the bottom of the HRB 1099-INT form, checked the box next to Interest item requires an adjustment (uncommon) LEARN MORE, then clicked Next.
  7. Clicked the radio button for Bought or sold this bond between interest payments.
  8. Entered the total amount of accrued interest calculated in step #3 above (as a positive number). Clicked Next.
  9. Opened the Schedule B form, and verified that ACCRUED INTEREST is entered as a negative number on the form.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Taxation of Treasury bills, notes and bonds

Post by nalor511 »

Ok I have encountered a bit of a weird one, and I'm not sure how to handle this in tax software.
CUSIP 91282CDR9, treasury note, bought and sold on secondary market
1099int box3:$88 box10:$187
1099b box1d:$23,944 box1e:$22,958 box1f:$986 gain/loss:$1,971

So, tax software is taking the 1099b accrued market discount of $986 and adding it to SchB and removing it from SchD, that's expected. But I don't understand what the 1099int box10 "market discount" of $187. Software says "if this is taxable add it to box1, taxable interest" but since this is for a treasury, they probably mean box3. But... do I need to do that? Is this already included in the accrued market discount of $986 that is being added to schB? Thank you in advance, my other broker did not put any "market discount" in the 1099int box10, so this is new to me
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Re: 1099-INT, Fidelity, Treasury accrued interest, HRBlock

Post by Artsdoctor »

Kevin M wrote: Wed Feb 14, 2024 8:21 pm EDIT. In working on something else, I ran across the accrued interest paid in 2022 in my tax spreadsheet that I was not able to deduct on my 2022 return, which I had forgotten about. I modified the steps below to include it.

Just entered my Fidelity interest, all of which was Treasury interest (USGO), into HRB 1099-INT. Some of the Treasuries I bought in 2023 were notes or bonds on which I paid accrued interest. Per the edit note above, I had purchased Treasuries in 2022, and paid accrued interest that I was not able to deduct on my 2022 return. I had noted this amount in my income tax spreadsheet. Below are the steps I followed to enter this all into the 1099-INT form in the HRBlock tax software.
  1. Downloaded the Fidelity 1099-consolidated tax doc for this account.
  2. Scrolled to the end of the 1099-Consolidated to find Accrued Interest Paid on Purchases in the 2023 SUPPLEMENTAL INFORMATION section. Entered the total accrued interest paid in 2023 into my tax spreadsheet, on the row below the the accrued interest paid in 2022 that I was not able to deduct for 2022. No, I did not check to verify that I received a coupon for every bond listed in the 1099 accrued interest section.
  3. In the spreadsheet row below, calculated the sum of the accrued interest paid in 2022 and 2023.
  4. In the interest income interview section of HRB, imported tax forms from Fidelity, which included the 1099-INT.
  5. Opened the 1099-INT from NATIONAL FINANCIAL SERVICES LLC (deleted the empty one from last year), and verified that the amount in Box 3, which was all there was, matched the 1099-INT box 3 amount in the 1099-Consolidated tax doc provided by Fido.
  6. At the bottom of the HRB 1099-INT form, checked the box next to Interest item requires an adjustment (uncommon) LEARN MORE, then clicked Next.
  7. Clicked the radio button for Bought or sold this bond between interest payments.
  8. Entered the total amount of accrued interest calculated in step #3 above (as a positive number). Clicked Next.
  9. Opened the Schedule B form, and verified that ACCRUED INTEREST is entered as a negative number on the form.
Although the HRBlock instructions will undoubtedly be helpful to many, the bigger message might be that if someone as savvy as you can forget about unused accrued interest from one year to the next, it can happen to anyone.

Another issue I'm starting to see trickle into other threads is the desire to take that accrued interest from a treasury note which can't be used for treasury interest in the year of purchase, and use it for other interest-bearing investments (like CDs). I would not have thought this could be confusing but evidently it is. :oops:
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Re: Taxation of Treasury bills, notes and bonds

Post by Richard1580 »

Reading through this thread I am amused that no one has asked the fundamental question - why is our tax code this convoluted (i.e. f'ed up.)?

I think we all know the reasons. I just find it amusing that no one addresses the gorilla in the room, but just takes its presence as an inconvenient given. Weird.
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Re: Taxation of Treasury bills, notes and bonds

Post by phoroner »

Just got my 1099 from Vanguard today for a taxable brokerage account

For treasury note bought at a discount and held to maturity, the cost basis was appropriately adjusted. But there is no reporting of the market discount on the 1099-INT form. This seems like an error; has anyone else had this happen?


Thanks
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Re: Taxation of Treasury bills, notes and bonds

Post by IDpilot »

Richard1580 wrote: Thu Feb 15, 2024 6:25 pm Reading through this thread I am amused that no one has asked the fundamental question - why is our tax code this convoluted (i.e. f'ed up.)?

I think we all know the reasons. I just find it amusing that no one addresses the gorilla in the room, but just takes its presence as an inconvenient given. Weird.
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

IDpilot wrote: Fri Feb 16, 2024 9:05 am
Richard1580 wrote: Thu Feb 15, 2024 6:25 pm Reading through this thread I am amused that no one has asked the fundamental question - why is our tax code this convoluted (i.e. f'ed up.)?

I think we all know the reasons. I just find it amusing that no one addresses the gorilla in the room, but just takes its presence as an inconvenient given. Weird.
That's because LadyGeek will pounce on you like an enraged Griffon!
Exactly. We're not supposed to discuss stuff like that. Also this thread is action oriented--i.e., it's intended to help folks with tax reporting for Treasuries, and discussing topics like "why tax code is convoluted" doesn't help with that.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Taxation of Treasury bills, notes and bonds

Post by Kevin M »

phoroner wrote: Thu Feb 15, 2024 10:52 pm Just got my 1099 from Vanguard today for a taxable brokerage account

For treasury note bought at a discount and held to maturity, the cost basis was appropriately adjusted. But there is no reporting of the market discount on the 1099-INT form. This seems like an error; has anyone else had this happen?

Thanks
Read about Accrued market discount in the OP.
If I make a calculation error, #Cruncher probably will let me know.
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Re: 1099-INT, Fidelity, Treasury accrued interest, HRBlock

Post by Kevin M »

Artsdoctor wrote: Thu Feb 15, 2024 4:47 pm Although the HRBlock instructions will undoubtedly be helpful to many, the bigger message might be that if someone as savvy as you can forget about unused accrued interest from one year to the next, it can happen to anyone.
I would have caught it at some point. That's why I document it in my tax spreadsheet. I'm going to run across it at some point when entering updates into the tax spreadsheet. But yeah, I highlighted it to emphasize not to forget about it.
Artsdoctor wrote: Thu Feb 15, 2024 4:47 pmAnother issue I'm starting to see trickle into other threads is the desire to take that accrued interest from a treasury note which can't be used for treasury interest in the year of purchase, and use it for other interest-bearing investments (like CDs). I would not have thought this could be confusing but evidently it is. :oops:
I'd say that's a no-no. Treasury interest is not taxable by the state, but anything reported in box 1 of the 1099-INT is. Using Treasury accrued interest to reduce box 1 interest reduces your state income when it shouldn't.

I just dealt with this. My Schwab 1099-INT had interest in box 1, which was mostly the bonus I got for moving the account there, as well as my T interest in box 3. I deleted the box 1 interest from this 1099-INT, did the Treasury accrued interest adjustment, and created a dummy 1099-INT to report the box 1 interest with no adjustments. If you don't do this, I believe HRB allocates the accrued interest adjustment between box 1 and box 3.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Taxation of Treasury bills, notes and bonds

Post by FactualFran »

nalor511 wrote: Thu Feb 15, 2024 3:12 pm Ok I have encountered a bit of a weird one, and I'm not sure how to handle this in tax software.
CUSIP 91282CDR9, treasury note, bought and sold on secondary market
1099int box3:$88 box10:$187
1099b box1d:$23,944 box1e:$22,958 box1f:$986 gain/loss:$1,971

So, tax software is taking the 1099b accrued market discount of $986 and adding it to SchB and removing it from SchD, that's expected. But I don't understand what the 1099int box10 "market discount" of $187. Software says "if this is taxable add it to box1, taxable interest" but since this is for a treasury, they probably mean box3. But... do I need to do that? Is this already included in the accrued market discount of $986 that is being added to schB? Thank you in advance, my other broker did not put any "market discount" in the 1099int box10, so this is new to me
It looks as if you directed the broker to use the option to accrue market discount each year you own the Note, rather than having the discount be taxed only for the year the Note matures or is sold.

The Market Discount on Form 1099-INT is the amount that accrued for the year. There was an accrual with each interest payment.

The Accrued Market Discount on Form 1099-B is the portion of the market discount that remained on the date of the sale that would have accrued with future interest payments if the Note had not been sold. The Accrued Market Discount on Form 1099-B should not include the Market Discount on Form 1099-INT.

You should do what the software indicates, with the detail that you noted about which box of the 1099-INT has the interest from a Treasury Note. Consider confirming whether the amount in the interest box of the Form 1099-INT is the sum of the interest payments shown on account statements.
nalor511
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Re: Taxation of Treasury bills, notes and bonds

Post by nalor511 »

FactualFran wrote: Fri Feb 16, 2024 9:39 am
nalor511 wrote: Thu Feb 15, 2024 3:12 pm Ok I have encountered a bit of a weird one, and I'm not sure how to handle this in tax software.
CUSIP 91282CDR9, treasury note, bought and sold on secondary market
1099int box3:$88 box10:$187
1099b box1d:$23,944 box1e:$22,958 box1f:$986 gain/loss:$1,971

So, tax software is taking the 1099b accrued market discount of $986 and adding it to SchB and removing it from SchD, that's expected. But I don't understand what the 1099int box10 "market discount" of $187. Software says "if this is taxable add it to box1, taxable interest" but since this is for a treasury, they probably mean box3. But... do I need to do that? Is this already included in the accrued market discount of $986 that is being added to schB? Thank you in advance, my other broker did not put any "market discount" in the 1099int box10, so this is new to me
It looks as if you directed the broker to use the option to accrue market discount each year you own the Note, rather than having the discount be taxed only for the year the Note matures or is sold.

The Market Discount on Form 1099-INT is the amount that accrued for the year. There was an accrual with each interest payment.

The Accrued Market Discount on Form 1099-B is the portion of the market discount that remained on the date of the sale that would have accrued with future interest payments if the Note had not been sold. The Accrued Market Discount on Form 1099-B should not include the Market Discount on Form 1099-INT.

You should do what the software indicates, with the detail that you noted about which box of the 1099-INT has the interest from a Treasury Note. Consider confirming whether the amount in the interest box of the Form 1099-INT is the sum of the interest payments shown on account statements.
Thank you for the tip, I did not make a sec 1278b election, so from what I'm reading, the default should be sec1276b1 and this should not have been in my 1099int but should be in the 1099b when disposed. Do I have that right?

If so, I'll contact them to correct the 1099int
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