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Posted by ed on June 30, 2008, 8:50 pm
Please log in for more thread options > >> if I buy a bond at $105, what happens on my tax return at maturity
> >> when I receive my $100 par value back? Do I show $5 of negative
> >> interest?
>
> > Capital loss, schedule d.
>
> OTOH, if the bond's interest is tax-exempt -- if it's a municipal bond --
> then there's no capital loss to report. The "loss" gets eaten up by
> amortization; there's no tax benefit at maturity.
>
> Reference: IRS pub 550...
>
> "If the bond yields tax-exempt interest, you must amortize the premium. ...
> each year you must reduce your basis in the bond ... by the amortization
> for the year."
>
> [The "premium" is the extra $5 you paid.]
The loss on a taxable premium bond should have been amortized over the
life of the bond, leaving the basis of the bond when redeemed, PAR.
So you have no loss this year. Sorry. Look at publication 550 to
see what you might do, but it is NOT a LTCL.
If it was a tax free bond, it's still PAR but you coundn't have gotten
any dedcution over the years. See Pub 550.
DON"t buy premium tax frees.
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