A taxpayer's certificate of deposit that was set to mature at the end of next year is needed for the down payment on their personal residence. The taxpayer decides to cash out the certificate of deposit now.

Is the following scenario accurate?

a$.$ The total interest income is $$1,600,$ and the taxpayer's early withdrawal penalty is $$300.$ Because the total is less than $$1,500,$ the taxpayer is not required to report any interest on their federal tax return.

b$.$ The taxpayer must report their total amount of interest and can deduct the penalty on their tax return.

c$.$ Both the total interest amount and the early withdrawal penalty are reported to the taxpayer on Form $1099-$INT.

Answer rating: 100% (QA)

ANSWER The correct scenario is option b The taxpayer must report their total amount of intere... View the full answer