How is accrued interest on a bond purchase treated?

The short answer, and what it depends on

Most bonds pay interest on fixed dates, usually twice a year. If you buy one three months after the last payment date, the next full coupon will pay you for a period that began before you owned the bond. The market handles this by having the buyer pay the seller the interest earned so far, called accrued interest, on top of the bond’s price. Publication 550 explains the tax result in two sentences. If you sell a bond between interest dates, the part of the sales price that is accrued interest is interest income to you for the year of sale. If you buy a bond between interest dates, the accrued part of your purchase price is not your income, and when it comes back to you in the next coupon you treat it as a return of your capital rather than interest.

The buyer: a worked example

The accrued amount is easy to estimate. On a $10,000 bond with a 5% coupon, annual interest is $500. If 73 days have passed since the last payment, the accrued interest is roughly $10,000 times 5% times 73 divided by 365, which is $100. (Your trade confirmation shows the exact accrued interest, and bonds use their own day-count conventions, so use the confirmation rather than this estimate.) The buyer pays the bond’s price plus about $100 to the seller.

At the next semiannual payment the issuer pays the buyer the full $250 coupon. Only $150 of that is interest for the period the buyer owned the bond. The other $100 simply repays the accrued interest the buyer fronted. If your Form 1099-INT reports the full $250 in box 1, the return has to correct for the $100, which is what the publication’s reporting instructions do.

How to report it on Schedule B

The publication tells you to include the full amount shown as interest on the Form 1099-INT on Schedule B (Form 1040), Part I, line 1. Then, below a subtotal of all the interest you listed, you enter the words “Accrued Interest” and the amount of accrued interest you paid to the seller. You subtract that amount from the subtotal. In the example above, the $250 coupon goes on line 1, you subtract $100, and $150 flows to line 2. Use the calculator on this page: enter the coupon and the accrued interest you paid, and it gives the subtraction and the taxable remainder.

This is one of the situations in which the publication requires Schedule B even if your total interest is below the $1,500 threshold: a Form 1099-INT for interest on a bond you bought between interest payment dates. The form is needed to make the adjustment visible, so the IRS can see why your total differs from the 1099.

The seller

For the seller, the accrued part of the sale price is interest, reported for the year of sale. A seller who gets $10,100 for a bond sold at $10,000 plus $100 of accrued interest has $100 of interest income, with the remaining $10,000 treated as the amount realized on the bond itself. If the seller’s broker issues a 1099-INT showing accrued interest paid by the buyer, it goes on Schedule B like any other interest. The capital gain or loss on the bond is figured separately on Form 8949 and Schedule D.

Bonds traded flat

There is a related case. If you buy a bond at a discount when interest has been defaulted or when accrued interest has not been paid, the trade is described as trading flat. The defaulted or unpaid interest is not income to you and is not taxable as interest when it is eventually paid. When you receive a payment of that interest, it is a return of capital that reduces the remaining cost basis of your bond. Interest that accrues after the purchase date is taxable interest income in the year received or accrued.

Check your paperwork

Look at your Form 1099-INT before you adjust anything. Publication 550 says to include the full amount shown on a 1099-INT that reflects accrued interest on a bond bought between interest payment dates, so the adjustment is yours to make on Schedule B. Compare the accrued interest line on your trade confirmation with the box 1 total on the form. If the form already excludes the accrued amount, do not subtract it twice.

Limits of this page

This page covers a taxable bond held by an individual. It does not cover bond premium amortization, market discount, original issue discount, or tax-exempt bonds, where the accrued-interest logic is the same but the interest itself is not taxed. To compare a bond’s yield after the purchase, use the bond yield calculator.

Sources

• IRS Publication 550, Investment Income and Expenses (2025): Bonds Sold Between Interest Dates and Bonds traded flat in chapter 1, and Accrued interest on bonds under How To Report Interest Income. Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 550 (2025), for use in preparing 2025 returns. Dollar limits and thresholds quoted on this page are for 2025 and can change; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.