For the first time, I have an amount reported on line 13 of the
/BAH
Bond premiums for tax-exempt bonds must be amortized. Therefore, you do not report it. You use the amount in Box 13 to reduce your cost basis in the bond. Secondly, you use it to reduce the amount of tax-exempt income you report on Line 8b of the 1040.
*** Bear in mind that reducing the level of tax exempt interest does nothing to reduce your taxes. Additionally if the tax exempt bond is "called" prior to maturity, the "adjusted basis " is reset to the par value, so if you paid 1200 dollars for a 20 year 1000 dollar bond and it is called 2 years later, your 175 dollar ( appr amortized) loss is not allowed.. Tax exempt bonds have special rules. They are not treated the same as taxable bonds or stocks... It is just a record keeping burden so the gov can know that you are keeping track... Make sure you know the "yield to call" and closest call date before you buy....
There are a variety of calculations that use Tax-Exempt Income that affect the bottom line. See the calculation for taxing social security and see the calculations for the ACA provisions.
I had assumed that the bond premium in line13 was what was "left over" from a bond which was redeemed. So that amount would be taxed as interest. My question was how to put it on form Schedule B.
If line 13 is the amount amortized, then I should be subtracting line 13 amount from line 8 amount? I don't see anything in the instructions nor publications which describe this action.
/BAH
The amount in question has nothing to do with Schedule B. Schedule B deals with taxable interest. We are discussing amortized bond premium on tax-exempt bonds. You must have purchased tax-exempt bonds at a premium (you paid more than face value) in your account. What you paid for the bond is your initial cost basis. Each year, you would have to reduce your initial cost basis by the amount of the premium amortized over the life of the bond. If the bond was kept to maturity, then your proceeds and basis at the time of maturity would be the same number. No gain or loss on the disposition. Each year that a tax-exempt bond pays interest, you report that amount on Line 8b of Form 1040. Before you actually record the amount, you take your total tax-exempt interest for the year and subtract the amortized premium for the year to arrive at the number for line 8b.
I should have added: See page 34 of IRS Pub 550 on how to handle bond premiums for tax-free investments.
I've read all that over the years. I'm still waiting for the this year's to show up in the snail mail.
This is the first time I've ever had an entry in line 13. So that's why I assumed it had to have something to do with the redemption of a certain bond.
It makes no sense to subtract line 13 from line 1099-INT line 8. that reduces the AGI which reduces the tax I pay every year (I pay tax on my Social Security). I'll look again and try to find the amount in line 13 in the detail section the broker sent.
I'll subtract it from line 8 but it sure seems wrong.
/BAH
Not Line 8. Line 8b which is tax-exempt income not in AGI.
Sorry. That's what I meant. I know it's tax exempt but reducing that amount will reduce the tax I pay on Social Security income. I thought that the bond premium amount would go on the interest expense form. Since I don't do Schedule A, the deduction of the bond premium would be included in the standard deduction.
BTW, thank you for the help. I enjoy reading this newsgroup.
/BAH
OPer says: "... reducing that amount [line 8b on form 1040, I think] will reduce the tax I pay on Social Security income."
Yes, that's right. Take it, you paid for it!
As tax-exempt income figures into various tax equations, it is quite possible that your tax will go down when you reduce tax-exempt income.
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