What is accrued interest?
If you buy a bond in between the interest dates, the accrued interest from before you buy the bond will be included in your 1099-INT as taxable income. You can deduct the accrued interest from the 1099-INT amount on your tax return.
For example, you buy a company's bond that pays out interest once a year on January 1st. If you buy the bond in the middle of the year on July 1st and the company pays you $1,000 in interest the next January 1st, you will receive a 1099-INT from the company for the full $1,000. Since you only owned the bond for half the time period the interest was accruing, only $500 of the bond interest would be taxable income on your tax return. You would enter the full $1,000 in Box 1 of the 1099-INT but then enter $500 as accrued interest so only $500 is taxable interest income.
For example, you buy a company's bond that pays out interest once a year on January 1st. If you buy the bond in the middle of the year on July 1st and the company pays you $1,000 in interest the next January 1st, you will receive a 1099-INT from the company for the full $1,000. Since you only owned the bond for half the time period the interest was accruing, only $500 of the bond interest would be taxable income on your tax return. You would enter the full $1,000 in Box 1 of the 1099-INT but then enter $500 as accrued interest so only $500 is taxable interest income.
