Accrued Interest reporting

Question

Last month I bought a treasury bond on the secondary market and I paid accrued interest. I don't have plans to sell the bond. I learned that the form-1099-INT does not handle accrued interest. My questions are:

* Do I have to report the accrued interest if I'm not selling the bond, if yes, how?
* Since treasury bonds are excluded from my local state tax, does FreeTaxUSA handle this case when filing my taxes, or should I do anything special?

AlexO · Accepted Answer

asaadsaad,

That is a great question!

You are correct that the accrued interest you paid generally won't be reported on Form 1099-INT. Instead, you'll enter this yourself when reporting your Form 1099-INT within FreeTaxUSA. When you enter your Form 1099-INT, simply enter an amount for "Accrued Interest (not common)'.

FreeTaxUSA does handle your case. When you enter the Form 1099-INT and report the interest in box 3, it will be excluded from your state tax.

BradyP · Accepted Answer

Hi Asaadsaad,

If you buy a bond in between the interest dates, the accrued interest from before you buy the bond will be included in your 1099-INT as taxable income. You can deduct the accrued interest from the 1099-INT amount on your tax return through an adjustment. To do this within FreetaxUSA: simply add it to the "accrued interest" box towards the bottom of the page when entering the 1099-INT you receive for the bond.

Hope this helps!