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Subject Author Date
buying bonds above par; maturity Gil Faver 06-30-2008
Posted by removeps-groups@yahoo.com on July 1, 2008, 5:32 pm
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> Gil Faver wrote:

> > 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.

But when you hold a bond till maturity, does the 1099-B show the
proceeds? Say you bought 10 bonds with a face value of 10k and held
them to maturity. Does the 1099-B show proceeds of 10k? I don't
remember mines showing it.

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Posted by ed on July 1, 2008, 8:40 pm
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 On Jul 1, 4:32 pm, "removeps-gro...@yahoo.com" <removeps-
gro...@yahoo.com> wrote:
>
> > Gil Faver wrote:
> > > 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.
>
> But when you hold a bond till maturity, does the 1099-B show the
> proceeds?  Say you bought 10 bonds with a face value of 10k and held
> them to maturity.  Does the 1099-B show proceeds of 10k?  I don't
> remember mines showing it.

First, an apology. I cn't believe I was awake when I posted that.
Ignore it.

To go on, however, i fyou don't amortize the loss is LTCL at
maturity. If you DO amortize read the instructions in PUB 550 which,
esentially, subtrats it from current income (which is a better deal
than the LTCL at maturity. Note it is a "all bonds" and "forever"
choice.. Yo ur1099 B will show total proceeds, so you show basis of
Zero if you amortized, or $105 if not.

Do not adjust line 8b when amortizing a tax free bond premium, just
reduce your basis, and don't bother ir you don't sell before maturity,
which is important if you are drawing Social Security and have some
other esoteric problems.

ed

--
<< ------------------------------------------------------- >>
<< 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 1, 2008, 9:35 pm
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>On Jul 1, 4:32 pm, "removeps-gro...@yahoo.com" <removeps-
>gro...@yahoo.com> wrote:
>>
>> > Gil Faver wrote:
>> > > 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.
>>
...
>To go on, however, i fyou don't amortize the loss is LTCL at
>maturity. If you DO amortize read the instructions in PUB 550 which,
>esentially, subtrats it from current income (which is a better deal
>than the LTCL at maturity. Note it is a "all bonds" and "forever"
>choice.. Yo ur1099 B will show total proceeds, so you show basis of
>Zero if you amortized, or $105 if not.




I though only the premium ($5) was amortized, so basis would
be face value if held to redemption.

>Do not adjust line 8b when amortizing a tax free bond premium, just
>reduce your basis, and don't bother ir you don't sell before maturity,
>which is important if you are drawing Social Security and have some
>other esoteric problems.


Why not reduce line 8b?
--


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. >>
<< ------------------------------------------------------- >>

Posted by MyVeryOwnSelf on July 1, 2008, 10:20 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?

> if you don't amortize the loss is LTCL at maturity.

I believe it could be either LTCG or STCG, depending on how long the bond
was held. (With the interest rates these days, lots of people are buying
short-term paper.)


> Note it is a "all bonds" and "forever" choice.

But according to IRS publication 550:

"You can change your decision to amortize bond premium only with the
written approval of the IRS. To request approval, use Form 3115,
Application for Change in Accounting Method."

I’m thinking of doing this. Anybody have advice?

Amortizing has two advantages: (1) get the benefit sooner rather than
later, and (2) offset ordinary income rather than LTCG (if held more than a
year). But I've found the record-keeping to be burdensome. So I'm thinking
of switching back. To keep it simple, I'd switch at a time when there are
no amortizing taxable bonds in the portfolio.

Have any of you out there done this, or know about somebody who has?

Are there any downsides other than losing the two advantages? How does the
IRS typically respond to requests like this? Would it tend to draw an
(eek!) audit?


> Your 1099 B will show total proceeds, so you show basis of
> Zero if you amortized, or $105 if not.

I'm guessing you mean "basis of $100" so the gain is Zero.

--
<< ------------------------------------------------------- >>
<< 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 DF2 on July 1, 2008, 11:25 pm
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In misc.taxes.moderated, MyVeryOwnSelf wrote:

>Are there any downsides other than losing the two advantages?

Figuring out the amortization numbers would be hard for me, so that
would be a disadvantage. Now if there were a bond tracking program
that was expert at doing this, that would be interesting.

--
<< ------------------------------------------------------- >>
<< 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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