USA Accrued Market Discount and Accrued Interest Paid from 1099-B

[LynnBooker2024]

Hello! Thank you for your time and passing along your knowledge. Both are very appreciated.

My question is about Accrued Market Discount and Accrued Interest Paid on US Treasury Notes that were purchased and sold in the same year, which are reported on form 1099-B. I understand that Accrued Interest Paid is recorded as interest on the Income Statement. I've read that Accrued Market Discount is also recorded as interest on the Income Statement. Are both amounts recorded or does Accrued Market Discount include Accrued Interest Paid? Meaning if Accrued Market Discount was $500 and Accrued Interest Paid was $200. Does the $500 include the $200? If so, do I only record $500? On form 1099-B the Accrued Market Discount is larger than the Accrued Interest Paid.

I'm happy to provide any more information needed to help come up with an answer.

 

[BIG E]

Although interest on bonds and obligations of the United States is exempt from taxation, gains and profits from the sale or other disposition of such bonds and obligations are taxable to the same extent as gains and profits from the sale or exchange of other property.

In your case, the accrued interest paid would be a reduction of the non-taxable interest shown on Schedule B. The accrued market discount would reduce your cost basis of the investment when sold and shown on Schedule D. One is a reduction of total interest earned between interest payment dates, the other is a cost basis adjustment. They are two separate, distinct items.

 

[LynnBooker2024]

Thank you Big E for responding. My apologies for my very delayed response.

I appreciate your bringing to my attention about the taxation on interest on T-Notes. I read that interest on T-notes is taxable at the federal level, but not at the state level. Is it best to separate interest on T-notes from Interest and Dividends earned on other securities? I don’t see this information on the 1099-B. I do see a page called Supplemental Tax Statement, State Reporting Information for Mutual Funds and Unit Trusts, but this page doesn’t show the interest on the T-Notes.

Thanks to your explanation and from reviewing the statements, I now understand why you stated that Accrued Market Discount and Accrued Interest Paid are distinct items. Accrued Market Discount is the difference between the amount paid for the T-Note and the redemption amount. It has nothing to do with interest. Accrued Interest Paid is interest that has been earned between the last interest payment up to when the T-Notes was purchased by me (as you stated “interest earned between interest payment dates”), and is owed to the previous owner, which is why it is a decrease to the Cash and Sweep account when the T-Notes were purchased.

You mention that “the Accrued Interest Paid would be a reduction of the non-taxable interest shown on Schedule B.” Does this mean that I debit Interest? Does this need to be separated from the earned Interest?

 

[BIG E]

Your tax software should have a field to enter that.
It shows up as a reduction of the non-taxable interest income.

 

[ferminarandee]

Your tax software should have a field to enter that.
It shows up as a reduction of the non-taxable interest income.

@BIG E is right.