Accrued Market Discount on Treasury bonds

Forum|Forum|2 years ago
January 31, 2024
3 replies
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Hello,

1. I bought treasuries at a discount in 2023 with 2-5 year maturity

2. Will the pro-rated (amortized) Accrued Market Discount be added to the interest paid in 2023 and every year following or,

3. Accrued Market Discount is realized as a lump-sum upon maturity or sale of the bond?

4. If it’s added to the interest on my broker’s 1099 how do I elect to defer it in TT (if allowed by IRS)?

5. Since Accrued Market Discount is considered interest by the IRS, is it taxed by the State or waived as any interest on government obligation?

Thank You,

Spichon

Ask the Experts - Early Filers - Jan 2024

Best answer by RobertB4444

You'll receive a 1099-INT each year with an amount in box 3 for the interest earned on your treasuries as well as an amount in box 10 for the market discount. You'll enter those each year as they appear.

If you choose to defer reporting the market discount then you will not report the amount in box 10. You will save the forms for each year and when you sell or redeem the obligations you will report the total for all of the box 10s that you received while you held the treasuries. Make sure to save those forms if you are planning to do that, however.

@spichon

RobertB4444Answer

@spichon

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tfgatlin

My Market Discount does not show up in INT Box 10. It shows up on Schedule B Part I.

Greg Brown

I'm not an expert, but I can tell you what I saw in my case with Fidelity Investments. If the T-Bill has a coupon amount, the Accrued Market Discount will be reported on your 1099-B as a capital gain, and the coupon interest on your 1099-INT. TurboTax then converts the Accrued Market Discount gain into interest and includes it on your Schedule B. If the T-Bill is zero-coupon, the Accrued Market Discount is reported as interest on your 1099-INT. I have no idea why this is how's it's done, but I have multiple T-bill purchase/sales this year done this way.

In regards to your state taxes, in most (if not all) states US Government interest is non-taxable at the state level. Unfortunately, TurboTax does not correctly pass the Accrued Market Discount thru properly to the state form. Trying to figure out this problem is why I'm searching the forums at this point.

tfgatlin

Exactly what I'm seeing. Accrued Market Discount is transfer to the Alabama Schedule B as taxable interest.

Robbied_isme

After you enter a 1099-DIV you get the message "Do these uncommon situations apply". The first selection is "A portion of these dividends is U.S. Government Interest.". Why not just put the Accrued Market Discount from you US Treasury bills/notes in here, admittedly, this 1099-Div may be unrelated to the AMD position, but don't you end up with the same federal tax due AND the correct accounting for state-level deduction of this interest?

sorka95032

@Robbied_isme , did you mean 1099-B 1f or 1099-int box 3? I'm not aware of how treasury income would show up on a 1099-DIV?

baldietax

@sorka95032 Treasury income shows on 1099-DIV Box 1 from any sort of Fund/ETF holding Treasuries e.g. Money Market Funds.

@Robbied_isme solutions inputting the AMD directly as 1099-INT/DIV don't work because you can't turn off the transfer of the AMD from Sched D/Form 8949 to Schedule B. You'd have to start manipulating 1099-B input to eliminate the AMD (set cost basis = proceeds) but now you're starting to mis-report Fed just to fix a state issue.