Tax Question

jack12 | Apr 14, 2023 | 307 posts since 2021

I was doing my taxes just now and noticed $672 in supplemental info not reported to the irs for accrued interest paid on purchases (I presume for an aftermarket cd or treasury)

What do I do with that figure?

Does it go on the return somewhere or is it already included or netted out or whatever?

I don't recall seeing this in the past

Thanks

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Answers

w00d00w | Apr 15, 2023 | 360 posts since 2012

accrued interest paid on purchase of a secondary bond/brokered CD held in a taxable account needs to be subtracted from interest earned on that bond/CD. if you're using tax prep software, there should be a question posed after entering the interest earned such as "do any adjustments need to be made to this amount?" that is where the accrued interest paid amount is entered.

alan1 | Apr 14, 2023 | 876 posts since 2015

Please carefully read IRS Publication 550, "Investment Income and Expenses". Please give special attention to the subsection "Accrued interest on bonds", beginning at p. 18, col. 1 at
https://www.irs.gov/pub/irs-pdf/p550.pdf

The answer to your specific question is:

a) It does "go on the return somewhere"
b) "whatever"

Please note that the subsection I cited is only a starting point. I suggest you carefully read the entirety of Publication 550 and other sources for more complete information. For example, the subsection I cited does not specifically address the question of what year you enter the accrued interest paid on your tax return. If the accrued interest paid, and the coupon payment reflecting that amount, occur in the same calendar year, then you report the accrued interest paid in your return for that calendar year (unless you do not use the calendar year for tax return purposes).

But what if you paid the accrued interest to the seller in October, but did not receive the coupon payment until say, January or February of the subsequent year? I believe I know the answer to that question, but I am not sufficiently interested to look for a reliable source that would support my answer. I suggest that you might wish to find out.

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