For 1099-interest reported on CD maturities in any given year, is there any threshold difference for under or over 12 months (1 year) CDs as they relate to short term capital gains taxes which apply to investments held for under one year (such as with stocks) and are taxed as ordinary income earned in the year they mature? Is/are there preferential conditions (reduced tax amount or bracket) for over 1-year CDs that might make longer term CDs more attractive or are 14 month and longer term CDs subject to similar tax treatment? Could a savvy, long-term CD investor please offer some insight as it might materially impact ladder building investment strategy. Thank you.
Answers
Capital gains and losses rarely come into play when you get the CDs directly from a bank or credit union. The only situation I can think of involves the possibility of a capital loss when an institution fails, the insurer pays out the amount of insured deposits and does not pay out for uninsured deposits. I think the uninsured depositor in that case has several alternative methods for income tax treatment, including a capital loss.
