Sale of Zero Coupon Muni bonds


S

saz

Hi,
I have a tax question. Usually I do my own taxes using TurboTax. This
year I sold/redeemed 2 Zero coupon Muni bonds. Does anyone know how
these are treated tax-wise and in Turbotax?

Usually I report sales of stocks and funds on Schedule D. But those are
for taxable capital gains/losses. Do I just ignore the sale of the Zero
Munis ? The difference between the sales price and the basis is
substantial as I bought these bonds over 12+ years ago. But the gains
should be tax free. Do the IRS need to know about the sale of these
type of bonds ?

Thanks in advance,
Steve
 
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A

Arthur Kamlet

I have a tax question. Usually I do my own taxes using TurboTax. This
year I sold/redeemed 2 Zero coupon Muni bonds. Does anyone know how
these are treated tax-wise and in Turbotax?

Usually I report sales of stocks and funds on Schedule D. But those are
for taxable capital gains/losses. Do I just ignore the sale of the Zero
Munis ? The difference between the sales price and the basis is
substantial as I bought these bonds over 12+ years ago. But the gains
should be tax free. Do the IRS need to know about the sale of these
type of bonds ?

Yes., the IRS and you will definitely receive a Form 1099-B
reporting the sale/redemption of muni bonds.


And starting this year they and you will also receive a 1099
reporting the amount of tax exempt interest as well!

On a zero muni, each year the OID amount should have


i) been added to Form 1040 line 8b, and

ii) added to cost basis of the bond.



If you bought the bond as an IPO and redeemed at first redemption
date, the amount of OID plus purchase price should equal the
first redemption amount, yielding a slight loss on redemption
equal to the brokers fee, if any. If you cannot identify the fee,
assume it is zero.


So in this situation your capital gain reported on schdule D is
zero -- sales price shown on the 1099B and cost basis are the
same.
 

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