3. Is the Premium realized as capital loss upon maturity or sale of the bond?
4. If it’s not deducted from the interest on my broker’s 1099 how do I elect to have it deducted in TT (if allowed by IRS)?
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1 Best answerIf adjustments for bond premiums are not reflected on your 1099-INT, you can manually enter the bond premium adjustment in the 1099-INT section of TurboTax .
This is also where you can report any accrued interest paid .
Follow these steps to make a manual adjustment for the bond premium you paid on your tax-exempt and taxable bonds:
Box 12 Bond Premium on U.S. Treasury Obligations shows the bond premium for the year for covered U.S Treasury securities . This amount reduces taxable interest and is notated "ABP Adjustment" on Schedule B. Box 13 Bond Premium on Tax-Exempt Bond shows the bond premium for the year for covered non-taxable securities.
Interest from corporate bonds and U.S. Treasury bonds interest is typically taxable at the federal level . U.S. Treasuries are exempt from state and local income taxes. Most interest income earned on municipal bonds is exempt from federal income taxes.
For taxable bonds, IRS Publication 550 states "Report the bond's interest on Schedule B (Form 1040A or 1040), line 1. Under your last entry on line 1, put a subtotal of all interest listed on line 1. Below this subtotal, print " ABP Adjustment ," and the total interest you received. Subtract this amount from the subtotal, and enter the result on line 2.
Bond premium amortization more than interest.
If the amount of your bond premium amortization for an accrual period is more than the qualified stated interest for the period, you can deduct the difference as a miscellaneous itemized deduction on Schedule A (Form 1040), line 28.
But your deduction is limited to the amount by which your total interest inclusions on the bond in prior accrual periods is more than your total bond premium deductions on the bond in prior periods. Any amount you can't deduct because of this limit can be carried forward to the next accrual period.
Some additional information on Bonds:
Bonds are typically taxed in two ways: when you earn interest on the bond and any capital gain on the sale.
When you earn interest, the IRS expects you to report that income on your tax return. Whether or not that income is taxable depends on the type of bond you invest in.
After the end of the tax year, your financial institution or the bond issuer should send you a Form 1099-INT reporting all the taxable and tax-exempt interest you received during the year.
Typically, interest from corporate bonds will be in Box 1, interest from U.S. Treasuries will be in Box 3, and tax-exempt interest from muni bonds will be in Box 8.
Even if you don't have to pay income tax on the interest, you still need to include it on your tax return. That's because, while some bond interest is tax-exempt, the IRS still includes it in some calculations.
If you buy a bond when it is issued and hold it until maturity, you generally won't have a capital gain or loss. However, if you sell the bond before its maturity date for more than you paid for it, you'll typically have a capital gain. If you sell it for less than you paid for it, you'll usually have a capital loss.
After the end of the tax year, your financial institution will send you a Form 1099-B reporting any bond sales that took place during the year.
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