Capital loss on inherited muni bond?


J

Jay

Taxpayer inherited a tax-free muni bond in 1986, and held it
to maturity. The bond matured in June, 2003.

The bond's fair market value when inherited was 10,800. The
face value received at maturity was 10,000.

If the muni bond had been purchased by the taxpayer at a
premium, I realize that there wouldn't be any capital gain
or loss on Schedule D because of the amortization rule. Does
the same rule apply to an inherited muni bond?

[Sorry about the re-post, but there was no response since
Feb.12. Everybody's busy doing returns, I guess. ;-) ]
 
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R

Robert C. McRae

Jay said:
Taxpayer inherited a tax-free muni bond in 1986, and held it
to maturity. The bond matured in June, 2003.

The bond's fair market value when inherited was 10,800. The
face value received at maturity was 10,000.

If the muni bond had been purchased by the taxpayer at a
premium, I realize that there wouldn't be any capital gain
or loss on Schedule D because of the amortization rule. Does
the same rule apply to an inherited muni bond?
Yes, I believe the rule applies, and have never been able to
find anything that says otherwise. The mandatory
amortization rule talks about basis and premium, both of
which the muni bond has, and does not mention any
exceptions. And I cannot come up with any logic that would
indicate the need for an exception. Sorry I do not have a
citation for you.
 

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