OID for zero-coupon tax-exempt bonds

Yes. Line 8b affects the taxable portion of social security. However, if you don't get social security or get it but have so much income that 85% of it is taxable, then it's probably OK to forget the calculation. I did for my own return. Tax-free income is also added to investment income and may disqualify you from the EITC, where if your investment income is over $2,950 you don't get EITC. And if you live in one state but own a muni from another that was bought at a discount, then the tax-exempt interest is actually taxable in the state you live in. The tax-free income might affect other parts of the tax return that I don't know of. And it might affect other non- tax things like qualification for student loans/grants (ie. more income would disqualify you), but I know nothing about these.

Tax exempt interest adds to mAGI when calculating the Medicare B surcharge.

And one more, which I saw in my software program: The sales tax deduction from the table method asks to add your taxable and non- taxable income to arrive at total income, and the sales tax deduction from the table method is based on this total income.

Then the puzzling thing to me is why it isn't included in form 1044-INT line 8.

In article , snipped-for-privacy@emailNot.invalid (MyVeryOwnSelf) writes: | >> Must one include yearly OID for zero-coupon tax-exempt bonds on form | >> 1040 line 8b? | | > Yes. ... | | Then the puzzling thing to me is why it isn't included in form 1044-INT | line 8.

The phase-in of exempt interest reporting on 1099-INT was (IIRC) over a few years. Tax-exempt OID was not included in the initial requirement but is coming soon I think unless the financial industry raises some objections.

The new reporting does (IMHO) raise some practical issues. Before there was any reporting of exempt interest on 1099-INT I made the same adjustments to tax-exempt interest that I did for normal interest before reporting it on 8b. In my case the only substantial adjustment was accrued interest paid on purchase which of course reduces the total reported. Since the new reporting on 1099-INT I have simply been entering the total of the 1099-INT exempt values on 8b on the theory that they want a match. This does not hurt me because there is nothing (yet) in my taxes that is affected by over-reporting exempt interest. Eventually I expect there will be an exempt interest version of schedule B to reconcile the adjustments.

The other interesting issue is how exempt OID reporting will interact with basis reporting. Currently Fidelity tracks basis voluntarily and I've observed that while they adjust the basis of my munis down to account for amortized premium they do not in general adjust it up for accrued OID. When both OID and basis reporting become mandatory I assume they will have to at least be consistent.

Dan Lanciani ddl@danlan.*com