Client has 1099 int for $5552. Claims has prepaid interest (Ford 150 Bond) which should be deducted from the $5552 which is reported on the 1099 int. I have problems with this since the 1099 should be reported as reported to IRS. Any insights please? I can't think straight right now.
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Prepaid Interest
Just talked to my client. His understanding is this interest is what he paid the original owner of the bonds when he purchased the bonds. All of the interest is reported on the 1099 int by the institution. It is my understanding that he reports all of it and then the interest he paid the original owner is deducted as investment expenses. What do you think? -
Amortizable bond premium
See TTB page 6-5. This should clear up the matter.Comment
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Amortizable Bond Premium
Thanks, Mark. I'm getting tax fatigue at this time of the year. People like you really make this board a valuable learning tool.Comment
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Accrued Interest
My TaxBook is at the office, so I don't know what is on pg 6-5. What you are talking about sounds like accrued interest. When you buy a bond between interest payment dates the seller of the bond expects you to pay him the interest accrued up to the date he sells it. So your basis in the bond includes that interest. Then when the interest is paid to you, you get all of it and it is included in the 1099INT. You list the full amount on Sch B and subtotal all interest then deduct the accrued interest. If your client gave you the full year-end brokerage statement you should find a section labeled accrued interest.Comment
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I think he means what you pay includes the interest. The accrued interest purchased is not included in basis. Also, accrued interest sold is not proceeds from a sale, but interest reported on Schedule B.Originally posted by JJ EAComment
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