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Municipal bond amortization

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jmfbahciv

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Dec 29, 2016, 11:09:09 AM12/29/16
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I've just had a bond redeemed early. The brokerage shows a loss
which, I assume, will be reported on the 1099 for 2016. Shouldn't
they have reported a $0 gain/loss because of amortization over the
years I held the bond? IIUC, amortization occurs from the time
I bought the bond until the call date so the premium I paid when
buying the bond was reduced each 6 months.

An additional question: Is the commission fee included in the
bond's cost basis which is reduced by amortization or can I declare
a loss of $9?

/BAH

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John Levine

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Dec 29, 2016, 2:41:55 PM12/29/16
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In article <PM000544C...@aca40cf8.ipt.aol.com>,
jmfbahciv <See....@aol.com> wrote:
>I've just had a bond redeemed early. The brokerage shows a loss
>which, I assume, will be reported on the 1099 for 2016. Shouldn't
>they have reported a $0 gain/loss because of amortization over the
>years I held the bond? IIUC, amortization occurs from the time
>I bought the bond until the call date ...

The premium is amortized over the life of the bond. If it's called
early, the reported loss is what would have been amortized between the
call date and the maturity date.

See IRS pub 550.

https://taxmap.ntis.gov/taxmap/pubs/p550-015.htm

>An additional question: Is the commission fee included in the
>bond's cost basis which is reduced by amortization or can I declare
>a loss of $9?

You'll have to look at your brokerage statements from when you bought
the bond. My broker wraps its commission into the selling price, but
I imagine there could be brokers that don't.

R's,
John

jmfbahciv

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Dec 30, 2016, 11:10:26 AM12/30/16
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John Levine wrote:
> In article <PM000544C...@aca40cf8.ipt.aol.com>,
> jmfbahciv <See....@aol.com> wrote:
>>I've just had a bond redeemed early. The brokerage shows a loss
>>which, I assume, will be reported on the 1099 for 2016. Shouldn't
>>they have reported a $0 gain/loss because of amortization over the
>>years I held the bond? IIUC, amortization occurs from the time
>>I bought the bond until the call date ...
>
> The premium is amortized over the life of the bond. If it's called
> early, the reported loss is what would have been amortized between the
> call date and the maturity date.
>
> See IRS pub 550.
>
> https://taxmap.ntis.gov/taxmap/pubs/p550-015.htm

I thought that, if there is an official call date, the amortization
was done over that time period and not the life of the bond. I know
I read it somewhere in some IRS pub but I can't find it now.

>
>>An additional question: Is the commission fee included in the
>>bond's cost basis which is reduced by amortization or can I declare
>>a loss of $9?
>
> You'll have to look at your brokerage statements from when you bought
> the bond. My broker wraps its commission into the selling price, but
> I imagine there could be brokers that don't.

Oh, the fees are included in the cost basis. I was asking if they
could be included when doing the amortization. IOW is the
original amount used in the amortiztion the bond + premium + fees
or just the bond + premium? I haven't found anything in the Pub.
which mentions that cost. My guess would be inclusion but I just
wanted to make sure with the experts here :-)

/BAH

John Levine

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Dec 30, 2016, 11:55:59 AM12/30/16
to
>> See IRS pub 550.
>>
>> https://taxmap.ntis.gov/taxmap/pubs/p550-015.htm
>
>I thought that, if there is an official call date, the amortization
>was done over that time period and not the life of the bond. I know
>I read it somewhere in some IRS pub but I can't find it now.

Pub 550 is about Investment Income and Expenses. It's the one that
has the answer to your question. Read it and see what you find.

>Oh, the fees are included in the cost basis. I was asking if they
>could be included when doing the amortization. IOW is the
>original amount used in the amortiztion the bond + premium + fees
>or just the bond + premium? I haven't found anything in the Pub.
>which mentions that cost. My guess would be inclusion but I just
>wanted to make sure with the experts here :-)

Unless you deducted the fees when you bought the bond, which it sounds
like you didn't, whatever you paid is what you paid, so you amortize
from there.

R's,
John

jmfbahciv

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Dec 31, 2016, 11:00:03 AM12/31/16
to
John Levine wrote:
>>> See IRS pub 550.
>>>
>>> https://taxmap.ntis.gov/taxmap/pubs/p550-015.htm
>>
>>I thought that, if there is an official call date, the amortization
>>was done over that time period and not the life of the bond. I know
>>I read it somewhere in some IRS pub but I can't find it now.
>
> Pub 550 is about Investment Income and Expenses. It's the one that
> has the answer to your question. Read it and see what you find.
>
>>Oh, the fees are included in the cost basis. I was asking if they
>>could be included when doing the amortization. IOW is the
>>original amount used in the amortiztion the bond + premium + fees
>>or just the bond + premium? I haven't found anything in the Pub.
>>which mentions that cost. My guess would be inclusion but I just
>>wanted to make sure with the experts here :-)
>
> Unless you deducted the fees when you bought the bond, which it sounds
> like you didn't, whatever you paid is what you paid, so you amortize
> from there.

Okay. Thank you!

/BAH
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