[nib]

In simulation , question : Wai purchased a CD on February 1, 2015. The CD is a 12-month, $20,000 CD with a 6% rate that posts interest on the last day of each month.

Answer : This interest on CD is not included in line 8a from tax return 1040 – U.S. Individual Income

My query is

1) Why CD interest is not included in 1040 ?

2) in above simulation has the taxpayer received CD interest or not received yet (but acrud in CD in her bank) .

3)when it mentioned “ that posts interest on the last day “.

What is the meaning of word “post “.

Does it means,

Issuer of CD, paid interest to CD holder

or

Issuer of CD, posted entries and interest accrued in his CD account not paid to CD holder .

[atx15]

Based on the facts of the questions, 12-month CD beginning on Feb 1, 2015 the interest would not be included on the 2015 return. The CD would not end until 2016. The interest would accrue monthly until Feb of 2016 and that's when the interest would become taxable. So, to answer your questions:

1. The interest isn't taxable on the 2015 tax return because it isn't constructively the taxpayer's until 2016 and that's when it will become taxable and show up on the taxpayer's tax return

2. The taxpayer will constructively receive the interest in Feb 2016 when the term of the CD is complete. Until then, the interest will accrue in the taxpayer's account

3. The interest “posts” to the account because the bank is paying the CD the interest but it doesn't actually belong to the taxpayer yet. So, essentially it is accruing

Someone please correct if my answers are wrong…..

AUD - 72, 83
BEC - 71
REG - 74, 77
FAR - Aug 2016

[Author]

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