Should 1099-INT/B forms show ACCRUED interest PAID when purchasing Treasury bonds?

That's actually a common confusion with Treasury securities! When you buy Treasuries in the secondary market (not directly from the Treasury), you're often buying them between interest payment dates. Since the previous owner held it during part of the interest period, you have to pay them the accrued interest they earned up to that point. What happens on your 1099-INT is that the full interest payment is typically reported in Box 3 (Interest on U.S. Savings Bonds and Treasury obligations). However, you're entitled to deduct the accrued interest you paid at purchase as an investment expense on Schedule B. Look at your original purchase confirmation - it should show the accrued interest paid. You'll list that amount on Schedule B as "Nominee Distribution" or "Accrued Interest" with a negative sign, effectively reducing your taxable interest income.

I had almost the exact same situation last year and was super confused about it. I used taxr.ai (https://taxr.ai) to figure out how to handle it correctly. Their system analyzed my 1099-INT and broker statements, then explained exactly how to report the accrued interest I paid. What's cool is they actually looked at my specific Treasury transactions and showed me where to deduct that accrued interest on Schedule B so I wasn't double-taxed. Sounds like you're in the same boat where you need to deduct that accrued interest you paid at purchase to offset what shows up in Box 3 of your 1099-INT.

Just wanted to follow up about taxr.ai - I decided to try it with my complicated bond situation and it saved me hours of research. I uploaded my 1099s and my brokerage statements, and it immediately flagged all the accrued interest situations that needed adjustment on Schedule B. The system even showed me that my broker had incorrectly categorized some of my Treasury interest, and gave me step-by-step instructions for fixing it on my return. It found about $870 in deductions I would have missed related to bond premium amortization and accrued interest adjustments. Definitely using this next year too!

If you're still trying to sort this out with the IRS, good luck getting someone on the phone. I spent 3 weeks trying to reach them about a similar treasury bond issue. Finally used https://claimyr.com and got through to an agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that the accrued interest you paid at purchase needs to be deducted on Schedule B to offset what's reported in Box 3 of your 1099-INT. They also explained that the capital loss from buying at a premium (paying more than face value) should be reported separately on Schedule D. Really straightforward once you actually get to talk to someone.

I need to apologize for being so skeptical about Claimyr. After posting that comment yesterday, I decided to give it a shot since nothing else was working. I got connected to an IRS agent within 25 minutes! The agent walked me through exactly how to report the accrued interest on my treasury bonds. The key point the IRS agent confirmed: the accrued interest paid should be reported as a negative amount on Schedule B to offset the amount shown in Box 3 of my 1099-INT. This prevents double taxation on interest I never actually earned. Also confirmed I could claim a capital loss for the difference between what I paid and what I received at maturity. Problem solved after weeks of frustration!

One thing nobody mentioned - check if your broker is using the "wash sale" method or the "accrual" method for reporting. Some brokers report the full amount in Box 3 and expect you to make the adjustment, while others already adjust it for you and only report your actual interest earned. You can check this by looking at the supplemental information that came with your 1099-INT. If there's a note about "accrued interest adjustment" or similar wording, they might have already accounted for it.

One other option: if your tax software allows it, you can adjust the amount reported in Box 3 directly rather than adding a separate line item. I use TurboTax and they have a section for adjusting 1099-INT amounts specifically for accrued interest purchased.

I've been dealing with treasury bonds for years and want to clarify something important that might help avoid future confusion. When you buy treasuries in the secondary market, always check the "accrued interest" line on your purchase confirmation BEFORE completing the transaction. The accrued interest is essentially paying the previous bondholder for the interest they earned while holding the security. When the next interest payment comes, you'll receive the full amount even though you only earned part of it - that's why you need to deduct what you paid upfront. For tax reporting, yes your 1099-INT will show the full interest payment in Box 3, but you absolutely should deduct the accrued interest you paid at purchase. List it on Schedule B as "Accrued Interest Paid on Treasury Securities" with the amount as a negative number. Also, losing money on a treasury isn't that uncommon if you buy at a premium in the secondary market. The capital loss (difference between what you paid excluding accrued interest and what you received at maturity) goes on Schedule D and can offset other gains or up to $3,000 of ordinary income. Pro tip: if you want guaranteed returns, consider buying treasuries directly from TreasuryDirect.gov at auction to avoid paying premiums and accrued interest complications.