Breaking CD's , Penalties and taxes

[pletal]

I am looking at breaking a couple of 2.6% CD's (which do not mature till 2026) and putting them into 4.7 for 5 years. I know there will be a 365 day interest penalty. Will I get taxed for the interest and be able to write off the penalty? It is enough to break, being over 200k.


Thanks

 

[njhowie]

You'll certainly be taxed for the interest. You could probably justify writing off the penalty. Unless the bank provides some other tax statement as to how they are reporting the penalty, if they report it, I would do it as a capital loss on schedule D. Your cost basis would be the $200k purchase amount and your sale proceeds would be the $200k minus the penalty.

Other folks here have broken CDs, so they could chime in as to what they've done tax-wise with the penalty, if anything.

 

[dunkelblau]

Does this go on 1040 Schedule 1 Line #18 (2021)? Curious because I just broke a CD for the first time last month.

 

[njhowie]

Does this go on 1040 Schedule 1 Line #18 (2021)? Curious because I just broke a CD for the first time last month.

Yes, that looks like the place.

 

[RetiredAndLovingIt]

Yes, that looks like the place.

Thanks guys, I had the same question.

 

[wolf]

Interesting. Never thought of taking loss on Schedule D. Capital loss.
Depending on one's tax bracket. Breaking a CD early may be more compelling.
With rising interest rates, may have to re-visit my CD ladder.

 

[SecondCor521]

Early withdrawal penalties on CDs should be reported to you by the bank via box 2 of your 1099-INT. They are carried to line 18 of Schedule 1 as an adjustment to income. They don't go on Schedule D.

 

[jim584672]

EWPs can reduce income for ACA purposes.