Normally only a cd purchaser this past year and knowing very little about bonds I purchased bonds for the first time when rates on bonds surpassed rates on cd's. When I received my income tax statement from Fidelity it listed an $85 bond premium amount on one of the bonds I purchased. As I understand it, this amount is deductible because I paid over par for the bond. Does this amount come directly off my total interest amount on schedule b? It's a small amount so what is the easiest way for me to treat this deduction? Can I ignore it? Any help would be appreciated.
Answers
That said, sometimes no action is a valid option. The key is understanding when that is so.
Not being in the bond market, I've no experience dealing with the issue you are asking about (so don't take anything I have to say as advice on your taxes, seek a tax professional if you want tax advice), as such I turned to a quick google which got me the following link
https://www.investopedia.com/articles/tax/08/bond-tax.asp
the section entitled "Amortization of Bond Premium" seems to be what you are looking for.
Your options, from reading that article appear to be:
1) deducting a pro-rated portion of the amount over par each year (which it sounds like your fidelity statement is giving you that amount)
2) deducting nothing each year and simply declaring a capital loss when either redeeming the bonds at maturity or selling them for a loss
That article also gives a link to the appropriate IRS publication
https://www.irs.gov/publications/p550#en_US_2018_publink100010250
You may want to check that out.
