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Posted by Arthur Kamlet on February 17, 2008, 8:48 pm
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>On Feb 15, 7:02 pm, kam...@panix.com (Arthur Kamlet) wrote:
>
>> No, theaccruedinterestis not capitalized into the bond cost.
>>
>> So theaccruedinterestis not part of the basis.
>
>This doesn't make sense. When I buy a bond at my brokerage, it says
>for example
>
>Face Value = 10,000
>Trade Type = Principal
>Issue = T Note
>Coupon = 4.875
>Maturity = 08/31/2008
>Qty = 10
>Price = 101.76562500
>Principal = $10,176.56
>Accrued Int = $231.70 (173 days)
>Trans Fee = 0
>Net Money = $10,408.26
>
>So what I pay for the bond is $10,408.26.
>
>But the principal is $10,176.56, and I believe this is what should be
>used in the capital gain calculation when you sell the bond.
>
>The interest of $231.70 gets subtracted out of my net interest for the
>year. At 4.875% I should get $487.5 a year, so my interest repoted on
>Schedule B will be either 487.50-231.70=255.8, or 487.50 on one line
>and (231.70) on the next line.
You are mixing cost basis of the bond, with paid and accrued interest.
You will reduce your bond's interest income by the accrued interest
you paid. But you will not use either interest received or accrued
interest paid to change your cost basis.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
--
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