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Since cost basis is being reported to IRS on a 1099-B for bonds I sold, and I don't agree with the cost basis, I'm wondering what to do. It's going to be an $86 difference in reportable income.

I bought bonds in 2012. I paid $4935.95 for the bonds and commissions, and $86.84 in accrued interest, for a total of $5,022.79.

I sold the bonds in 2013. The 1099-B from the broker says cost basis is only $4935.95.

In the 2012 tax statement I got from the broker, there is a section in the back called Accrued Interest Paid on Purchases. In it is the $86.84 I paid when I bought the bonds.

So, what do I do with this number for 2013 taxes? Can I just add it to the cost basis, or subtract it from what I report from the 1099-INT? Is it something I should have put on my 2012 taxes?

Did the broker screw up?
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From IRS Publication 550:

Bonds Sold Between Interest Dates

If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. You must report that part of the sales price as interest income for the year of sale.

If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond. See Accrued interest on bonds under How To Report Interest Income, later in this chapter, for information on reporting the payment.

I think the question is when you got the actual payment that included the "reimbursement" of the $86.84 in accrued interest you paid. If that was in 2012, then Pub 550 says you should treat it as a return of capital rather than taxable interest in 2012. But if you bought the bond say 12/1/2012 and the first interest payment wasn't until 1/31/2013, then it probably goes in 2013.

Please insert usual disclaimers about this not being official tax advice and the like. Publication 550 has more stuff on this.

good luck,
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thanx much
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