Bond OID & Accrued Interest

Question

I have recently bought Treasury Notes in the Secondary Market at a Discount. Maturities are 2025-2030.

* Is the correct amortization for 2023 calculated and contained in the 1099-OID?
* Accrued interest was included in the price I paid but the actual cash interest payments will not begin until 2024. Is the accrued interest taxable in 2023 or 2024 when I actually receive it?

Thanks

AlexO · Answer

Hello, jgalt60!

That is a great question!

* The amortization for the loans bought at a discount is reported to you via the Form 1099-OID. 
* You generally include the discount in your income as it accrues over the life of the bond. This is true whether or not you receive any payments.

For more information regarding the taxation of OIDs, you may want to consult Publication 550. OIDs are mentioned on page 12.

KeriC · Answer

* Yes, Box 6 Acquisition Premium on your Form 1099-OID will contain the correct amortization for the 2023 tax year.
* According to the Department of the Treasury, "Even though you never physically received the money reported as OID income, the IRS requires us to report the increased value of the security as income." This means you will still report interest income for 2023 even though you won't have received any cash interest payments from the OID in 2023.