On December 15th, I buy a bond which will pay $425 interest on February first. I pay $10500 for the bond and $322 accrued interest. How is the $322 handled this year? How is the $425 handled next year? If they had occured in the same year, do I simply report the $103 in interest or is it more compled?
No, that's how it works. Ignore the $322 for now.. Next year declare the $425 and deduct the $322 as "nominee interest" on Schedule B. So, you'll pay tax on $103 next year. Do not include the $322 in your basis when you sell, nor the accrued interest in your sales proceeds you will get when you sell when computing your capital gain or loss. pay income tax on the accrued interest in the year you sell the bond.
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I agree with all above except I'd label the $322 "Accrued Interest" on schedule B. Nominee interest is where you act as Nominee for another known party and Nominee Interest over $600 to that party, not your spouse, requires that you issue a 1099-INT. With accrued interest you cannot issue a 1099-INT to the party, and wouldn't want to mess with that anyway. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
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