Nominee interest, or accrued interest, is interest that belongs to someone else. When you buy a bond between the interest payment dates, the bond interest is included in the sale price. If the interest on the bond is more than $10, the barter or broker will send you a 1099-INT, which will include your part and the seller’s part of the interest. Although you don’t have to pay taxes on someone else’s interest, you still have to report the accrued interest to the Internal Revenue Service.
Download Schedule B from the IRS website.
Write the name of the bond seller in Line 1 on Schedule B.
Enter the amount reported to you in Box 1 of Form 1099-INT in the “Amount” column on Schedule B.
Write “Nominee Distribution” on the line below the name. Write the accrued interest amount on the same line. Write the words “Accrued Interest” next to the amount. For example, if you’re reporting $250 in accrued interest, write “Nominee Distribution, $250, Accrued Interest” in the line.
Add all of the amounts you listed in Line 1, but don’t include the accrued interest. Write the total on Line 2.
Complete Schedule B to figure which portion of your interest income is taxable. Transfer this amount to the line labeled “Taxable Interest” on Form 1040A or Form 1040.
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