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Subject Author Date
buying bonds above par; maturity Gil Faver 06-30-2008
Posted by Gil Faver on July 1, 2008, 12:10 pm
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>> >> 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.


Thanks. Pub 550 says for taxable bonds you can elect to amortize the
premium (so I guess if you don't elect this, it is LTCL); it says for
tax-exempts, you MUST amortize the premium.

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Posted by Arthur Kamlet on July 1, 2008, 12:39 pm
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>
>Thanks. Pub 550 says for taxable bonds you can elect to amortize the
>premium (so I guess if you don't elect this, it is LTCL); it says for
>tax-exempts, you MUST amortize the premium.


How is the amortization shown? As a reduction of Schedule B interest?
If a muni bond, reduction of line 8b?

Not on a 4797 I hope?
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by MyVeryOwnSelf on July 1, 2008, 3:13 pm
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>>Thanks. Pub 550 says for taxable bonds you can elect to amortize the
>>premium (so I guess if you don't elect this, it is LTCL); it says for
>>tax-exempts, you MUST amortize the premium.
>
> How is the amortization shown? As a reduction of Schedule B interest?

Yes: "ABP Adjustment," one negative number, for all bonds combined, in a
line at the end of Schedule B.


> If a muni bond, reduction of line 8b?

Presumably, yes. But (IMO) line 8b almost never affects the tax due, so one
might argue it's pointless to do the amortization calculation unless the
bond is sold before maturity (in which case, amortization reduces the basis
but not all the way to the face value, and there may be a capital gain or
loss).


(Disclaimer: I'm not a tax pro.)

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Posted by removeps-groups@yahoo.com on July 4, 2008, 1:47 am
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> Presumably, yes. But (IMO) line 8b almost never affects the tax due, so one
> might argue it's pointless to do the amortization calculation unless the
> bond is sold before maturity (in which case, amortization reduces the basis
> but not all the way to the face value, and there may be a capital gain or
> loss).

Line 8b (tax-exempt interest) affects the taxable portion of social
security. Maybe it affects other things too, even those not tax
related such as qualification for federal college loans.

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Arthur Kamlet on July 4, 2008, 12:48 pm
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>
>> Presumably, yes. But (IMO) line 8b almost never affects the tax due, so one
>> might argue it's pointless to do the amortization calculation unless the
>> bond is sold before maturity (in which case, amortization reduces the basis
>> but not all the way to the face value, and there may be a capital gain or
>> loss).
>
>Line 8b (tax-exempt interest) affects the taxable portion of social
>security. Maybe it affects other things too, even those not tax
>related such as qualification for federal college loans.


It affects EIC (counts as investment income.) It also could cause
Medicare Premiums to increase.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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