Taxable Accrued interest.

[JG EA]

I did a search and found the good comments by R, Slugg. I read 550 Page 11 and 19..
I am looking at a Morgan Stanley report. that is within the 1099 reports for the year. It is on a summary page and not on a 1099. It says:

Interest you paid 2009
Taxable Accrued interest $
Nontaxable Accrued interest $

I am assuming this in alread included on the sale of Bonds with the 1099B since no other information is given.

Is this a good assumption?

[JG EA]

OK in digging deeper there is a list:

Name Trade Date Interest paid Interest received


It has a note on the interest received that it is on the 1099-INT

In the past I've done nothing with this accrued interest assuming it was in the cost basis - but this year it is a big number and want to review.

What do you do?

[Jesse]

I subtract the accrued interest on Schedule B and then make myself a note that I must remember to reduce the basis of the bond by the amount of accrued interest I subtracted.

[JG EA]

I subtract the accrued interest on Schedule B and then make myself a note that I must remember to reduce the basis of the bond by the amount of accrued interest I subtracted.

Thank you. Do you think they don't keep track of this and don't add it to basis when it is sold?

[Jesse]

I don't think customarily they have. This year I have had two different statements with ** indicating cost basis had been adjusted for accrued interest. I'm wondering if it has something to do with the new cost basis reporting requirements coming in the near future?

[JG EA]

I'm having trouble matching the bonds. It doesn't seem to me that the ones that paid the TP interest also have interest that the TP paid. If I can't match anything do I need to keep track for next year? (This is one of my many blind spots that I can't see around.)

[Jesse]

Not my best topic either.

Veritas....where are you? This seems more your area of expertise.

Do you have a statements with the 1099-Int and then a breakdown of the interest earned? The statements that I have seen have the interest broke down and the amount of accrued interest purchased for each different bond. If the statement you have does not maybe ask client for the last statement ending 12/31/09? Or have them contact their Financial Advisor for details?

[FEDUKE404]

My input FWIW

I've had several instances where accrued interest (on both the buy/sell sides and taxable/non-taxable assets) has been a factor.

Unless you want to pull your hair out checking, it is a reasonable assumption that most investment firms are now tracking the actual cost basis, exclusive of the interest considerations.

IF that is the case, you are home free and just need to reduce any Sch B interest received by whatever interest was "not" received ( = paid to seller at time of purchase) due to the holding period. This is especially true if the enhanced Form 1099 shows entries for "accrued interest." Most software will automatically insert a Sch B line such as "less accrued interest paid" for those adjustments.

The reverse can sometimes be applicable for the seller of the bond, who may have received some "income" at the time of sale even though the 1099-INT would eventually go to the other person.

Where you have the problem is when a client just says "I paid such and such on a certain date" or "I received such and such on a certain date." Then you probably need to look at the transaction form to figure out what really occurred.

This falls into that general category of "Not all tax matters can be resolved by software in a box."

FE

[JG EA]

ThanksJesse and FEDUKE404 for your help.

[veritas]

According to the 1099B instructions

The broker is not supposed to include accrued interest in the sales price, but to report it on 1099int.

In your supplemental information accrued interest paid with the purchase of a taxable bond should be deducted on Sch B. The payer only knows the owner of record on the payment date and reports the entire amount to the owner as of the payment date.