Updating capital reporting record
In general, market discount accrues over the term of a debt instrument on a ratable basis or, if you elect, on a constant yield basis. For a taxable debt instrument, you may elect to amortize bond premium over the term of the debt instrument (a section 171 election). Once made, a section 1276(b) election can’t be revoked. 429, for more information on how to make a section 1276(b) or section 1278(b) election and section 30.01 of Rev Proc. For a tax-exempt debt instrument, your broker must report to you the amount of amortized bond premium for the year. Your broker isn’t required to notify the IRS when you instruct the broker to change the assumption concerning an election regarding how information is to be reported to you.For more information about market discount, see Pub. The amortization of bond premium generally means that each year, over the term of the debt instrument, a portion of the premium is applied to reduce the amount of the stated interest includible in your income. §1.1272-3 for more information on how to make or revoke a §1.1272-3 election. However, for a debt instrument acquired on or after January 1, 2015, unless you have timely notified your broker that you do not want your broker to take into account the section 1276(b) election for reporting accrued market discount to you, your broker must report accrued market discount to you based on a constant yield. Making or changing an election with your broker doesn’t mean you have made a valid election or revoked an election with the IRS.We have information about Form 8949 and Schedule D at About Form 8949, Sales and other Dispositions of Capital Assets.If you sell a debt instrument, your broker generally is required to report the proceeds you receive from the sale to you and the IRS.In general, the stated redemption price at maturity is the stated principal amount of the debt instrument plus any stated interest that is not paid at least annually over the term of the instrument. For more information about acquisition premium, see Pub. Instead of reporting a gross amount for both OID and acquisition premium, a broker may report a net amount of OID that reflects the offset of the OID includible in income for the year by the amount of acquisition premium allocable to the OID. In general, market discount is the excess of (a) a debt instrument’s stated redemption price at maturity over (b) your basis in the debt instrument immediately after you acquire it.The tax regulations call interest that is paid at a fixed or variable interest rate at least annually over the term of a debt instrument “qualified stated interest.” A zero-coupon bond is one example of a debt instrument with OID. In this case, the broker won’t report the acquisition premium as a separate item on Form 1099-OID. If a debt instrument also has OID, market discount is the excess of (a) the debt instrument’s adjusted issue price as of the day you acquire it, over (b) your basis in the debt instrument immediately after you acquire it. For a covered security, a broker generally must report any amortized bond premium for the year on Form 1099-INT.In general, a debt instrument acquired on or after January 1, 2014, is a covered security if the debt instrument provides for a fixed yield and a fixed maturity date.However, there are certain types of debt instruments with a fixed yield and a fixed maturity date, as described in Q&A 2, that are not covered securities unless they are acquired on or after January 1, 2016. §1.6045-1(n)(2) for the specific requirements to determine if a debt instrument is a covered security beginning in 2014. What debt instruments are considered covered securities beginning in 2016? What debt-specific items may affect the adjusted basis of a debt instrument?
Although qualified stated interest received and OID accrued on a tax-exempt debt instrument are tax-exempt and not includible in income, market discount on a tax-exempt debt instrument isn’t tax-exempt interest and therefore is includible in taxable income. In addition, you must treat any partial principal payment on a debt instrument with market discount as interest income, up to the amount of the accrued market discount. In this case, the broker won’t report the amortized bond premium as a separate item on Form 1099-INT. What is amortization of bond premium, and how does it affect your basis in a debt instrument? For bond premium, unless you have timely notified your broker that you have not elected to amortize bond premium on a taxable debt instrument (the section 171 election), your broker must report to you the amount of amortized bond premium for the year. §1.171-5 for more information on how to make or revoke a section 171 election for a taxable debt instrument. Does my notification to the broker mean I have made or revoked the election with the IRS?The IRS has created a page for information about Form 8949 and Schedule D at About Form 8949, Sales and other Dispositions of Capital Assets. What can I expect to receive from my broker that is different from previous years?