IRS Publication 550 — Investment Income and Expenses

in the business of lending money. The note stated that principal and interest would be due on August 30, 2025. In 2025, you received $2,163.20 ($2,000 principal and $163.20 interest). If you use the cash method, you must include in income on your 2025 return the $163.20 in interest you received in that year. Constructive receipt. You constructively receive income when it is credited to your account or made available to you. You do not need to have physical possession of it. For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan association, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal.

You constructively receive income on the deposit or account even if you must:

• Make withdrawals in multiples of even amounts,

• Give a notice to withdraw before making the withdrawal,

• Withdraw all or part of the account to withdraw the earnings, or

• Pay a penalty on early withdrawals, unless the interest you are to receive on an early withdrawal or redemption is substantially less than the interest payable at maturity.

Accrual method. If you use an accrual method, you report your interest income when you earn it, whether or not you have received it. Interest is earned over the term of the debt instrument.

Example. If, in the previous example, you use an accrual method, you must include the interest in your income as you earn it. You would report the interest as follows: 2023, $26.67; 2024, $81.06; and 2025, $55.47. Coupon bonds. Generally, interest on coupon bonds is taxable in the year the coupon becomes due and payable. It does not matter when you mail the coupon for payment. How To Report Interest Income Terms you may need to know (see Glossary): Nominee Original issue discount (OID)

Generally, you report all your taxable interest income on Form 1040 or 1040-SR, line 2b.

Schedule B (Form 1040). You must complete Schedule B (Form 1040), Part I, if any of the following apply.

1. You had over $1,500 of taxable interest or ordinary dividends.

2. You are claiming the interest exclusion under the Education Savings Bond Program (discussed earlier).

3. You received interest from a seller-financed mortgage and the buyer used the property as a personal residence.

4. You received a Form 1099-INT for U.S. savings bond interest that includes amounts you reported in a previous tax year.

5. You received interest or ordinary dividends as a nominee.

6. You received a Form 1099-INT for interest on frozen deposits.

7. You received a Form 1099-INT for interest on a bond you bought between interest payment dates.

8. You are reporting OID in an amount less than the amount shown on Form 1099-OID.

9. You are reporting interest income of less than the amount shown on a Form 1099 due to amortizable bond premium.

In Part I, line 1, list each payer's name and the amount received from each. If you received a Form 1099 -INT or Form 1099-OID from a brokerage firm, list the brokerage firm as the payer.

Reporting tax -exempt interest. Total your tax-exempt interest (such as interest or accrued OID on certain state and municipal bonds, including zero coupon municipal bonds) reported on Form 1099 -INT , box 8; Form 1099-OID, box 11; and exempt -interest dividends from a mutual fund or other RIC reported on Form 1099 -DIV , box 12. Add these amounts to any other tax -exempt interest you received. Report the total on Form 1040 or 1040-SR, line 2a.

Form 1099 -INT , box 9, and Form 1099 -DIV , box 13, show the tax-exempt interest subject to the AMT on Form 6251. These amounts already are included in the amounts on Form 1099-INT , box 8, and Form 1099-DIV , box 12. Do not add the amounts in Form 1099 -INT , box 9, and Form 1099-DIV , box 13, to, or subtract them from, the amounts on Form 1099-INT , box 8, and Form 1099-DIV , box 12. Caution: Do not report interest from an individual retirement arrangement (IRA) as tax-exempt interest. Form 1099-INT. Your taxable interest income, except for interest from U.S. savings bonds and Treasury obligations, is shown in Form 1099-INT , box 1. Add this amount to any other taxable interest income you received. See the Form 1099-INT Instructions for Recipient if you have interest from a security acquired at a premium. You must report all your taxable interest income even if you do not receive a Form 1099-INT . Contact your financial institution if you do not receive a Form 1099 -INT by February 15. Your identifying number may be truncated on any paper Form 1099-INT you receive.

If you forfeited interest income because of the early withdrawal of a time deposit, the deductible amount will be 24 Chapter 1 Investment Income Publication 550 (2025)