To report accrued interest paid on Schedule B, list the full interest amount from your Form 1099-INT on Part I, Line 1, then subtract the accrued interest you paid to the seller as a separate line below the subtotal, labeled “Accrued Interest.” The net figure carries down to the Part I total and then to your Form 1040. The subtraction keeps you from paying tax on the portion of the next coupon that really belonged to the seller’s holding period.
The Schedule B Entry, Step by Step
Schedule B expects a specific sequence, and following it in order is what keeps your return reconciled with the 1099-INT data the IRS already has on file.1Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025)
- On Part I, Line 1, enter each payer’s name and the full interest amount shown on the 1099-INT. If you hold bonds from more than one issuer, list each one on its own line.
- Add the entries to produce a subtotal.
- Directly under the subtotal, write “Accrued Interest” as the description and enter the dollar amount you paid to the seller at purchase.
- Subtract that figure from the subtotal. The result is your taxable interest, which flows to the Total line of Part I and then onto Form 1040.
Be exact to the penny. Rounding the 1099-INT figure or the accrued interest amount can generate an automated notice when the IRS matches your return against what your broker filed. The mechanics match the recovery method the IRS describes in Publication 550 for interest that was taxable to the seller rather than to you.2Internal Revenue Service. Publication 550, Investment Income and Expenses
Documents That Support the Subtraction
Your trade confirmation from the purchase is the key record. It breaks out the bond’s price from the accrued interest component, and it’s your proof of the exact amount you’re entitled to subtract. Your monthly brokerage statement may show the same split.
Form 1099-INT, which your financial institution must furnish by January 31,3Internal Revenue Service. General Instructions for Certain Information Returns (2025) reports total interest paid to you during the year in Box 1. That total includes the full coupon on any bond you bought mid-cycle. There is no separate box on the 1099-INT that isolates accrued interest paid at purchase,4Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID which is why the trade confirmation matters.
Some brokerages, though, already net the accrued interest out of the Box 1 figure they report. Check your year-end tax statement or call your broker before you enter anything. If the 1099-INT number already reflects the adjustment, subtracting it again on Schedule B will understate your income.
Tax-Exempt Bonds Don’t Go on Schedule B
Municipal bonds and other tax-exempt securities skip Schedule B’s interest section entirely. Tax-exempt interest is reported on Form 1040, Line 2a, and the IRS instructions direct you to enter the net amount there: total tax-exempt interest received minus the accrued interest you paid to the seller.1Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025)
You do the math yourself and report only the net figure. There’s no visible line-item subtraction the way there is for taxable bonds. Keep a worksheet in your files showing how you arrived at the number, because your Line 2a total will differ from Box 8 of the 1099-INT, and the IRS may ask why.
Bond Premium Is a Different Line, With a Different Label
Accrued interest and amortizable bond premium both sit below the Line 1 subtotal on Schedule B, and both reduce your reported interest. They are not the same adjustment and they don’t share a label.
Accrued interest is what you paid the seller for their portion of the next coupon; you label it “Accrued Interest” and take it in the year of purchase. Bond premium arises when you paid more than face value, and if you elect to amortize it, the annual subtraction is labeled “ABP Adjustment.”1Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025) Premium amortization spreads over the bond’s remaining life; the accrued interest subtraction is typically a one-time adjustment.
If you bought at a premium and also paid accrued interest, you may need both subtractions in the same year. List them as separate labeled entries below the subtotal.
When the Accrued Interest You Paid Exceeds the Coupon You Received
This happens when you buy late in the accrual period and only collect one partial coupon during the calendar year. Following the Schedule B procedure can drive your net interest from that bond below zero.
For standard coupon bonds, the excess reduces your other interest income on Schedule B. If you have enough interest from other payers on the same schedule, the subtraction simply lowers the overall total. Keep detailed records showing how the negative figure arose, because the IRS matching system expects the 1099-INT totals and your return to reconcile.
Mistakes That Trigger Notices
Rolling Accrued Interest Into Cost Basis
Accrued interest paid at purchase is not part of the bond’s cost basis. It’s recovered through the Schedule B subtraction. If you also add it to basis, you’ll deduct it a second time when you sell the bond and calculate capital gain or loss. Treat the purchase price and the accrued interest as two separate items from day one.
Subtracting Twice When the Broker Already Netted
Compare the Box 1 figure on the 1099-INT against your trade confirmation. If the broker already removed the accrued interest before reporting, subtracting it again on Schedule B underreports your income and eventually invites a correction.
Leaving the Label Off
The IRS specifically requires the subtraction to be identified as “Accrued Interest.”1Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025) An unexplained negative number below the subtotal will not match the 1099-INT in the IRS system, and a notice usually follows. The label tells the IRS why the numbers differ.
How Long to Keep the Records
The general rule is to keep tax records for at least three years from the date you filed the return or two years from the date you paid the tax, whichever is later.5Internal Revenue Service. How Long Should I Keep Records? For bonds, hold the records longer. Your trade confirmation and 1099-INT establish the accrued interest paid, and they also support your cost basis when you sell.6Internal Revenue Service. Topic No. 305, Recordkeeping If you hold the bond for ten years, keep the purchase paperwork for the full holding period plus at least three years after you file the return for the year of sale.