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Taxation of CD question
Old 02-16-2009, 11:49 AM   #1
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Taxation of CD question

This is a simple question but I haven't found the answer explicitly stated in other sources. If you own a one year CD that matures in 2009 do you have to declare any of the interest when doing your 2008 taxes? Or is all CD interest taxable in the year of maturity?

My Vanguard account and tax documents do not state anything about interest received in 2008 so that would imply no tax due until the 2009 tax year.
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Old 02-16-2009, 12:00 PM   #2
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Your answer is here: http://www.irs.gov/pub/irs-pdf/p550.pdf
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Old 02-16-2009, 12:51 PM   #3
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Thanks OAG. I should have thought to look up that IRS publication. Looks like since I have not received interest and cannot get it yet without "a substantial penalty", I do not have to declare it until it is received.
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Old 02-16-2009, 12:55 PM   #4
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As I understand it (and I'm not a pro in the area), if the maturity is one year or less and if the interest is only paid out at maturity, the interest is all taxable when it's actually paid (i.e. at maturity).

Maturities longer than one year, I think, owe taxes on the value of the accrued interest once a year, even if the interest hasn't been paid out.

I'm pretty sure that's the rule; someone please correct me if I'm wrong...
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Old 02-16-2009, 01:03 PM   #5
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Quote:
Originally Posted by lsbcal View Post
Thanks OAG. I should have thought to look up that IRS publication. Looks like since I have not received interest and cannot get it yet without "a substantial penalty", I do not have to declare it until it is received.
Right out of the pub:
If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due

You ought to receive a 1099-int or similar from each institution holding your CDs. You can actually pull the interest earned without penalty, but to withdraw principal would cost you that (deductible) penalty.

So yes, you do have to report the interest, whether or not you have it in hand or roll it over into the principal (unless of course you've earned no interest).
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Old 02-16-2009, 01:53 PM   #6
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Quote:
Originally Posted by deepc View Post
Right out of the pub:
If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due

You ought to receive a 1099-int or similar from each institution holding your CDs. You can actually pull the interest earned without penalty, but to withdraw principal would cost you that (deductible) penalty.

So yes, you do have to report the interest, whether or not you have it in hand or roll it over into the principal (unless of course you've earned no interest).
How do you conclude this? OP said it was a one-year CD.
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Old 02-16-2009, 10:16 PM   #7
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If interest was credited during the year, you should receive a 1098 (or 1099?) for the CD and it would indicate whatever interest was credited ( and reported to IRS). If interest is not credited until maturity, no obligation until then.
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