Accrued Interest Paid on Bonds

I did read the publication 550; it was to just put the accrued interest as a negative number under the entry for interest.
Well, that doesn't work for me on TaxCut.
The 1099INT is: Line 1 Interest Income 275 Line 3 Interest/Treasry 1886 Line 8 Tax-Exempt Int 4490
The Accrued interest paid is: Corporate Bonds 14 Treasury Bonds 290 Municipal Bond 502
I entered the 1099INT and then a second 1099INT with negative numbers for all the accrued interests; which is what I read PUB550 as requiring. Well TaxCut gives me errors saying it can't accept negative interest. TaxCut does allow you to enter adjustments for purchases made between interest payments, but you can only enter a single number for Accrued interest Adjustment; when I have three different kinds of interest to adjust for. So I entered 806 in accrued interest and it puts a smaller figure in accrued interest on Schedule B; apparently it divides up the accrued interest over the total interest and puts the taxable share on Schedule B.
Is this acceptable? It is only approximately correct, as the accrued interest isn't necessarily in the same proportion as the interest. If not, then what the heck do I do?
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Reply to
Tom

My question is (and I don't know if the answer to this is the same for all brokers): is there any reason not to believe the values in box 1, 3, and 8 don't already include accrued interest paid or received when bonds are bought or sold?
Looking at my 1099 from the broker I do bond transactions with, it is clear they included these amounts. They conveniently break this out in a section called "Detail Information of Interest Income". So from my perspective, I just use the amount in the box and I'm done. (Except possible on Schedule D.)
Steve
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Reply to
Steve Pope
from what I can tell, my brokers' 1099s include all interest received in the boxes, including accrued interest. It is up to me to back it out with a negative number, as Tom is attempting to do.
don't know anything about tax programs, I do it by hand using back of envelopes for calculations . . .
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Reply to
Gil Faver
understanding is that they do include the accrued interest given when sold, but not that paid when purchased. They show that as a separate listing and leave it up to you to deal with. I suppose (assuming for the moment that I am right) you have to deal with the accrued interest paid in the year you buy it, but the accrued interest given waits until you sell it; so they can't do it all for you.
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Reply to
Tom

You're right. Scratch my statement above.
I pulled out 1099's from a couple different years and looked at them more closely ... and you're right. They include all the interest received in the box 1 total, but not any of the interest paid.
Reading Pub 550 this has a subtlety I did not previously recognize. If you buy a bond between interest dates, and pay the seller an amount for accrued interest, this amount is not immediately considered negative interest income. Instead it is -- temporarily -- part of your basis in the bond. Then, when you receive the next coupon payment (which could be in the following taxable year), the amount of interest income recognized is the coupon minus the previously paid accrued amount, and the latter is subtracted from your basis.
Slightly wacky, but I suppose it's done that way to account for the purchase date being in a different tax year than the subsequent coupon.
Steve
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Steve Pope

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