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Posted by Shagnasty on April 20, 2006, 3:25 pm
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> I purchased a 10yr T-note at market discount Sept 15 2005.
>
> Pub 550 confused things a bit...
>
> Questions:
>
> 1. I believe I should use the "constant yield" method of
> accreting the discount. Is this correct?
>
> 2. Assuming I have a correct amortization schedule for this
> bond, when do I recognize the accretion income? (Paydates
> are 5/15, 11/15). Do I report accretion income for the
> period 09/15/2005 through 12/31/2005, or just 09/15/2005
> until Paydate 11/15/2005? In other words, does the
> accretion income get reported in a lump sum on the paydates
> like the interest payment, or is it essentially recognized
> daily? I am cash basis.
Read publication 1212. It has a group of formulas along
with other methods.
You would use a 'constant percentage' factor that would
result in the discount being recognized each year in amounts
that would ultimately total the diffference between maturity
value and purchase price.
Each year's income would be reported. If the bond was not
purchased at the issue price, then the discount or premium
should be added or deducted from the taxable amount.
--
Atticus Thomas, CPA
9112 Shore Crest Dr
Cedar Hill, TX 75104-6927
Tel 972-293-1139
Fax 972-767-0907
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