Normally, T-bill interest is reported on 1099-INT , so exemption from State tax is automatic But , since a sale of a t-bill is reported as a 1099-B transaction, where would you report it to not lose that State exemption Im reporting all trades on 4797 as a market to market trader.
Are you talking about accrued interest that is built into the proceeds of the sale, or interest payments that you received before the sale? Interest that you received before the sale will still be reported on Form 1099-INT... And I think the accrued interest will also be reported on Form 1099-INT. Even though it is part of the sale proceeds, it is not principal or premium. The broker should break it out and include the accrued interest on Form 1099-INT. BMK
T-bill , is sold at a discount, there are no interest payments All the broker does is report the cost basis and the mark to market gain at the end of they year if you still hold the bill. . I don't think there is a 1099-INT issued if you sell before maturity , its reported as a cap gain. Must be some folks who know how to handle this
Nothing?? Cmon guys, someone here must have bought and sold a T-bill before maturity and can tell me how they reported it , so that it isn't taxed at the state level. All IB does is report it as a Non-covered Security SALE , with gain or loss not determined
I think I can help you solve this, but I need to make sure I understand the facts. You sold T-Bills at a discount before maturity. Part of the sales price is accrued interest. So, for example, you sold $10,000 face value of T-bills, and you received $9,750. Of that $9,750, $50 is accrued interest, and $9,700 is discounted principal. And the Form 1099-B shows gross proceeds of $9,750. And you did not receive Form 1099-INT. Is that what happened? BMK
It's actually a really good question that you'd probably want to talk to a professional like GreenTrader Tax about to see if there are any private letter rulings or other IRS guidance on the subject. There are a couple of ways you could do it, for example the most rational way would seem to impute the interest from the price you paid, calculate the interest amount using that rate earned to the point you sold it, and treat the delta from your sales price as capital gains or losses. But you could also do it 2 or 3 other ways. Let us know if you do get a professional opinion what it is. Keep in mind that the 1099 is just a reporting tool for the IRS, it's not necessarily the correct number to use on your taxes especially in situations like this.
Right, IB does not report it as interest unless it is held to maturity . I assume thats industry practice. Normally I would not care, and would just report it as a trade, with capital gain, but the state tax thing is an issue . There have to be many traders here who have traded in and out of tbills, or bonds and dealt with this. Probably have to do something with a 1099-OID form , but wanted to get some real world input
I am a professional tax advisor. But I am semi-retired, and trading and bonds are not my area of expertise. But I understand what you did, and I think I can help you resolve this. Your trade confirmations and account history should allow you to determine exactly how much of the sales proceeds were interest. If you can't do that, then I don't have a complete solution for you. If you know how much of it was interest, then it's not that complicated. There are two parts to the equation: Part 1:You report the interest portion in the appropriate area of your tax return. It does not matter that you did not receive Form 1099-INT. There are many situations in which a person receives taxable interest income but does not receive Form 1099-INT. For example if you are the seller in a seller-financed mortgage, the buyer does not have to send you a Form 1099-INT, but you still have to report the interest income. So in your tax program, you enter the interest in the appropriate place. Exactly how you do this depends on the program, but the principle is universal. There may be a box to indicate whether you received Form 1099-INT. And there will definitely be a field to indicate that the interest is from the US Treasury, or that it is "state-exempt." So you enter the interest and check that box. Don't let it bother you if it feels like you are creating a "fake" Form 1099-INT. The point is to get the interest entered on line 2b of Form 1040, and get it coded so that it is backed out of your gross income on the state tax return. Part 2: You report the sale of the bonds on Form 8949, in the section of your tax program where you report capital gain and loss. You have to report the total gross proceeds from the sale as it appears on Form 1099-B. If you don't do that, then it won't match with the data the IRS received from the broker, and you'll get an unpleasant letter from the IRS. But you adjust your basis in the bonds--the amount you paid for them--upward by the amount of the interest. In other words, you increase your basis by the amount of the interest, and in this way you avoid having the interest included in your capital gain (or loss). Your 1099-B indicates that the broker did not report your basis to the IRS. (Gee, I wonder why? Might have something to do with the accrued interest LOL.) So the adjustment to your basis will not trigger any red flags with the IRS. Does this make sense? BMK
Okay, so I read your original post again, and I see that you are using Form 4797 instead of Form 8949. That's okay, and it does not change my answer. You report the sale of the bonds on Form 4797, and you adjust the basis upward by the amount of the accrued interest. BMK
The problem with that approach is it doesn't accurately capture any capital gains or losses that occurred because of a change in interest rate. Let's say I buy a 30 year bond today and interest rates unexpectedly go down dramatically 3 days later which causes the price of the bond to immediately go up dramatically. I then sell it on day 4 for a much higher amount than I paid for it. If I classified all that as "interest" I'm pretty sure the tax folks would cry foul, as it's almost entirely capital gains.