There were several posts on this before, but there's some ambiguity
and possible conflicts in some of the previous answers so I'm asking
for some clarification.
-----------------------------
This is what Pub 550-2011 says on the topic:

"Accrued interest on bonds. If you received a Form 1099-INT that
reflects accrued interest paid on a bond you bought between interest
payment dates, include the full amount shown as interest on the Form
1099-INT on Schedule B (Form 1040A or 1040), Part I, line 1. Then,
below a subtotal of all interest income listed, enter ?Accrued
Interest? and the amount of accrued interest you paid to the seller.
That amount is taxable to the seller, not you. Subtract that amount
from the interest income subtotal. Enter the result on line 2 and also
on Form 1040, line 8a. "
-----------------------------
Questions:

1) It doesn't say anything about only deducting the accrued interest
paid on Schedule B in the tax year you receive your 1st bond interest
payment for the specific bond for which the accrual was paid. In other
words, if you buy a bond on 12/31/2012 and pay accrued interest (AI)
to the seller and receive no interest on that bond in 2012, it seems
you CAN still deduct (on Sched B) the AI you paid in 2012 in tax year
2012 and don't have to wait until TY 2013 when you receive your first
interest payment (as some posts said or implied).
Is this true, with the qualifier that your Schedule B subtotal (line
4) should be positive (you have other bond interest to reduce)?

2) The specific P550 directions above are confusing as to how to fill
out the form.
a. Do they mean that you just lump all accrued interest in one line?
b. What does "then below a subtotal ..." mean.
Do they really instead mean include accrued interest at the end of Sch-
B Line 1?
Does the accrued interest need to included as negative or positive?

E.g. is this correct:
Sched-B
1. BOND A 100.0
BOND B 25.0
BOND C 50.0

Accrued Interest -50.0
-----------------------------
2. 125.0
3.
4. 125.0

Thanks.

- posted 7 years ago

-- > >

Click to see the full signature