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When is CD interest taxed?

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Ian Pilcher

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Jan 3, 2024, 12:55:35 PMJan 3
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I invested in certificates of deposit for the first time in 2023, so
I'm trying to figure out how CD interest is taxed.

This article[1] indicates that interest on short term CDs (less than 1
year) is only taxed in the year that the CD matures. This would mean
that none of the interest on an 11-month CD that matures in January of
2024 is taxable in 2023; it will all be taxed in 2024, even though most
of it was actually earned in 2023.

Is this correct? If so, is this rule written down anywhere? (My
searches for anything official on this topic have come up empty thus
far.)

[1] https://time.com/personal-finance/article/are-cds-taxable/

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John Levine

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Jan 3, 2024, 4:21:37 PMJan 3
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According to Ian Pilcher <arequ...@gmail.com>:
>Is this correct? If so, is this rule written down anywhere? (My
>searches for anything official on this topic have come up empty thus
>far.)

IRS Publication 550 says:

In general, any interest that you receive or that is credited to your
account and can be withdrawn is taxable income.

and

Certificates of deposit and other deferred interest accounts. If you
buy a certificate of deposit or open a deferred interest account,
interest may be paid at fixed intervals of 1 year or less during the
term of the account. You generally must include this interest in your
income when you actually receive it or are entitled to receive it
without paying a substantial penalty. The same is true for accounts
that mature in 1 year or less and pay interest in a single payment at
maturity. If interest is deferred for more than 1 year, see Original
Issue Discount (OID), later.

So yes, you pay tax when the CD matures. Your bank or broker should send
you a 1099-INT saying how much.




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