Accrued Intrest Paid on Bonds in IRA
I know that accrued interest paid on bonds purchased gets deducted from interest income each year.
Is accrued interest paid on bonds purchased in a TIRA, deductible on my yearly federal return?
If not, could it be accounted for as a reduction to the IRA basis, like contributions are?
Permalink Submitted by Alan - IRA critic on Thu, 2017-12-07 18:26
No, you cannot make any adjustments. However, this all balances out correctly because in a taxable account you will receive interest for a period of time that you did not own the bond and that offsets the accrued interest you paid. Since your payment of accrued interest comes before you receive the additional interest, you get to deduct the accrued interest which eliminates a distortion if the tax year ends between the time you paid the accrued interest and receive the actual interest. This is not necessary in an IRA because you are not paying current taxes.