1099 Bond Premium on Tax Exempt Bonds and Your Taxes

If you've invested in tax-exempt bonds, you might be surprised to receive a 1099 form with a bond premium. This can be confusing, but it's essential to understand the implications for your taxes.

The bond premium is the difference between the bond's issue price and its face value, which can be a significant amount. For example, if a $1,000 bond is issued at $900, the bond premium is $100.

This premium is subject to taxation, and you'll need to report it on your tax return. The good news is that the interest earned on tax-exempt bonds is still exempt from federal income tax, but the bond premium is treated as ordinary income.

The IRS considers the bond premium as interest income, and you'll need to report it on Form 1040, Line 2a.

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Box 13 of the 1099-INT form reports the amount of bond premium paid on tax-exempt bonds. This is an important detail to consider when filing your taxes.

The IRS considers bond premium as taxable income, and it's reported on your tax return. This means you'll need to account for the premium when calculating your tax liability.

The premium is essentially the amount you paid above the face value of the bond.

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1099-INT Box 13 is a crucial section on your tax return that reports the amount of tax withheld on interest income.

The amount reported in Box 13 is the total amount of tax withheld from the interest income you earned throughout the year.

This tax withholding is typically done by the payer of the interest, such as a bank or investment firm, and is usually withheld at a rate of 24% for most taxpayers.

You can use the amount reported in Box 13 to adjust your tax withholding or claim a refund if you've overpaid your taxes.

The tax withheld in Box 13 is usually reported as a separate line item on your tax return, and you'll need to report this amount on your tax return to ensure you're accurately claiming your tax refund or paying any additional taxes owed.

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Reporting Box 13 income is a straightforward process, but it requires some attention to detail. To start, you'll need to gather all relevant documents, including your 1099-INT form and any applicable tax statements.

Box 13 income is reported on Schedule 1 of your tax return, where you'll need to list all your income from interest, dividends, and capital gains. This includes income from bank accounts, investments, and other sources.

You'll need to report the total amount of Box 13 income on Line 1 of Schedule 1, using the correct box number to indicate the type of income. For example, if you have interest income, you'll use Box 1a, and if you have capital gains, you'll use Box 2.

Keep in mind that you may also need to complete additional forms, such as Form 8949 for capital gains and losses, or Form 8814 for interest income from children's savings accounts.

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To determine the bond premium on tax-exempt bonds, you'll need to know the price of the bond on the day your benefactor died. This price can be obtained from the broker.

The yield-to-maturity (YTM) is a key factor in calculating the bond premium. Using the Excel YIELD function, you can determine the YTM with the following formula: YIELD(death date, maturity, coupon, price, redemption, frequency).

The YTM for the bond in the example is 8.07439%. This value is obtained by using the YIELD function with the specific dates and values from the example.

To calculate the cost basis on the call date, you'll need to use the Excel PRICE function. The formula for this is: face value * PRICE(call date, maturity, coupon, yield, redemption, frequency) / 100.

Assuming the bond was called on 8/1/2015, the cost basis would be 108,192.26. This is obtained by plugging in the specific dates and values from the example into the PRICE function.

If the bond was called at 108% of its face value, there would be a capital loss of $192.26. This is calculated by subtracting the cost basis from the face value of the bond.

Here's a summary of the steps to calculate the bond premium: