Schedule B – 1099 Transactions

Schedule B is used to report interest and/or dividends. Taxpayers should use Schedule B if they:

• Had over $1,500 in interest or dividends
• Received interest from seller-financed mortgage and the buyer used the property as a personal residence
• Have accrued interest from a bond
• Are reporting Original Issue Discount (OID) in an amount less than the amount shown on Form 1099-OID
• Are reducing their interest income on a bond by the amount of amortizable bond premium
• Are claiming the exclusion of interest from series EE or I U.S. savings bonds issued after 1989
• Received interest or ordinary dividends as a nominee
• Had a financial interest in, or signature authority over, a financial account from a foreign country or received a distribution from a foreign trust

Regular Interest

Interest Amount– Shows taxable interest paid. This does not include interest shown in box 3. After reporting the interest, the program will allow you to enter in the other information that may be filled in on the Form 1099-INT statement.

Early Withdrawal Penalty– The amount in box 2 shows the interest or principal forfeited because of early withdrawal of time savings. If an amount in box 2 of the Form 1099-INT is present, enter the amount on this line. This amount is carried as an adjustment to Form 1040, Penalty on Early Withdrawal of Savings.

Taxable US Savings Bond Interest– The amount in box 3 shows interest on U.S Savings Bonds, Treasury bills, Treasury bonds, and Treasury notes. This amount may or may not all be taxable. Any amount that is determined to be taxable should be entered on this line.

Federal Income Tax Withheld– Box 4 shows backup withholding. If any federal tax was withheld in box 4, enter this amount here. This amount will carry to the payments section of Form 1040.

State Exempt Interest– If the interest is exempt from state taxes, include the exempt interest amount and the state code. If you are unsure whether this amount is tax exempt in your state, refer to the state instructions for the state.

Nominee Interest

1. Report the Form 1099-INT on Schedule B.
2. After the last entry on line 1, enter a subtotal of all interest. Below the subtotal enter ‘Nominee Distribution’ and list the total interest received as a nominee as a negative amount.
3. Subtract the nominee interest from the subtotal and enter the result on line 2.
4. Taxpayer must issue a Form 1099-INT for the nominee amount unless the owner of the income is taxpayer’s spouse. List the taxpayer as payer and the owner as recipient. File Form 1099-INT and Form 1096 with the IRS.

Original Issue Discount (OID) Adjustment –OID is a form of interest. It is the excess of a debt instrument’s stated redemption price at a maturity over its issue price (acquisition price for a stripped bond or coupon). Generally OID is included in income as it accrues over the term of the debt instrument, whether or not you receive any interest payments from the issuer. Obligations that may have OID include debt instruments such as a bond, note, debenture, or other evidence of indebtedness having a term of more than one year. In most cases, the entire amounts in boxes 1 and 2 of Form-OID must be reported as interest income. See Publication 1212 for details on refiguring OID.

Accrued Interest

• Seller. If a bond is sold between interest payment dates, part of the sales price represents interest accrued to the date of sale. A taxpayer who sells the bond must report the accrued interest portion of the sales price as interest income in the year of the sale.
• Buyer. If a bond is purchased between interest payment dates, part of the sales price represents interest accrued before the date of purchase. A taxpayer who buys the bond treats the accrued interest portion of the purchase price as a return of capital by reducing basis in the bond. Interest reported on Form 1099-INT that includes interest accrued before the date of purchase should be listed in full on Schedule B. Then, subtract the amount of ‘Accrued Interest’ from the subtotal of all interest income received.

Amortizable Bond Premium (ABP) Adjustment– If a taxpayer pays a premium to buy a bond, the premium is part of the taxpayer’s basis in the bond. If the bond yields taxable interest, you can elect to amortize the premium. This generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. If you make this choice, you must reduce your basis in the bond by the amortization for the year. See Publication 550.If the bond yields tax-exempt interest, the taxpayer must amortize the premium. The amount is used to reduce the amount of tax-exempt interest reported on line 8b, Form 1040, and also reduces the taxpayer’s basis in the bond.

Accrued Market Discount

• Ratable accrual method. Treat the market discount as accruing in equal daily installments during the period you hold the bond. Figure the daily installments by dividing the market discount by the number of days after the date you acquired the bond, up to and including its maturity date. Multiply the daily installments by the number of days you held the bond to figure your accrued market discount.
• Constant yield method. Instead of using the ratable accrual method, you can choose to figure the accrued discount using a constant interest rate (the constant yield method). Make this choice by attaching to your timely filed return a statement identifying the bond and stating that you are making a constant interest rate election. The choice takes effect on the date you acquired the bond. If you choose to use this method for any bond, you cannot change your choice for that bond.

Tax Exempt Interest– Tax exempt interest is required to be reported on the tax return but it is not taxable. The amount is reported on Form 1040, but is not included in Total Income.

Regular Dividend

Regular Dividends will be reported on a Form 1099-DIV statement. There are two types of dividends that may appear on Form 1099-DIV. (Ordinary and Qualified Dividends) Ordinary dividends are taxable but Qualified dividends are not. Qualified dividends will appear on line 9b of the Form 1040 and will not be included in Total Income. After entering the dividend amount(s), the program will allow you to enter information that is relative to the Form 1099-DIV statement. Nominee Dividends are dividends that you receive on behalf of another person. If your name and taxpayer identification number are on a brokerage account, but all or some of the stock belongs to someone else, you must file a Form 1099-DIV and the other person must report the dividends on his or her own tax return. You then report a nominee dividend adjustment to reduce your taxable dividends.

• While exempt-interest dividends are not subject to federal income tax, they may still be subject to state income tax or the Alternative Minimum Tax (AMT). The dividend income must be reported on the income tax return, and it is reported by mutual funds on Form 1099-INT.

Seller Financed Interest– Interest received from a seller-financed mortgage (if the buyer uses the property as a personal residence) should be listed on Schedule B. Report the buyer’s name, address, and SSN.

Part III – If total interest less excludable interest on series EE and I U.S. savings bonds issued after 1989 is greater than $1,500, or if total dividends are greater than $1,500, Schedule B Part III must be completed. Click here for information about completing Part III. 

Note: This is a guide to entering interest and dividends on Schedule B in Keystone Tax Solutions Pro. This is not intended as tax advice.