Understanding 1099-OID for Israel bonds
Jonathan Kamens
in our SSNs, some in our children's SSNs under UTMA MA) that I believe
are zero coupon bonds, for which we are sent 1099-OID statement each
year.
Please verify that my understanding of each of these points is correct:
* For the bonds under our children's SSNs, I use the unearned income
test (they have no earned income) to determine whether each child needs
to file, and if the child doesn't need to file, then I don't need to
report or pay taxes on the the 1099-OID income for that child.
* For the bonds under our SSNs, I report and pay interest on them each
year, and then when the bond matures and we are sent the proceeds, I
use a cost basis that is the same as the amount of money they send us,
since I've already paid taxes through the income reported on the
1099-OIDs.
* For bonds given to us as gifts, as long as we don't run afoul of the
limits for tax-free gift giving from any individual in a given year, we
don't have to pay taxes on the value of the bond when we receive it,
i.e., its purchase price, and our cost basis then becomes that value.
Then, when the bond matures, we're in the same situation as above, and
our cost basis is the same as the proceeds because of the 1099-OIDs.
Have I got all that right?
Thanks,
Jonathan Kamens
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Arthur Kamlet
Jonathan Kamens <j...@kamens.brookline.ma.us> wrote:
>I have Israeli bonds (some given to us as gifts, some purchased; some
>in our SSNs, some in our children's SSNs under UTMA MA) that I believe
>are zero coupon bonds, for which we are sent 1099-OID statement each
>year.
>
>Please verify that my understanding of each of these points is correct:
>
>* For the bonds under our children's SSNs, I use the unearned income
>test (they have no earned income) to determine whether each child needs
>to file, and if the child doesn't need to file, then I don't need to
>report or pay taxes on the the 1099-OID income for that child.
Right. Last year if a child received not more than $850 in
unearned income and no earned income there is no filing
requirement.
>* For the bonds under our SSNs, I report and pay interest on them each
>year, and then when the bond matures and we are sent the proceeds, I
>use a cost basis that is the same as the amount of money they send us,
>since I've already paid taxes through the income reported on the
>1099-OIDs.
With OID instruments acquired as IPOs, your cost plus the sum of all
OID earnings you received should equal the redemption value at maturity.
So you report the sale (redemption) amount and cost will be the same,
for no gain or loss.
>* For bonds given to us as gifts, as long as we don't run afoul of the
>limits for tax-free gift giving from any individual in a given year, we
>don't have to pay taxes on the value of the bond when we receive it,
>i.e., its purchase price, and our cost basis then becomes that value.
>Then, when the bond matures, we're in the same situation as above, and
>our cost basis is the same as the proceeds because of the 1099-OIDs.
Not exactly.
The cost basis will be the same as the giver's cost basis and
the purchase date is the same as the giver's. In the unlikely
event that the fair market of the bond went down modulo OID
amounts, the bond is subject to a dual basis, but by maturity
you can be sure the giver's cost is the one to use.
Moreover, the business about gift tax does not affect you.
Any gift tax filings because a person gifted more than
the annual exclusion amount (12,000) to any other person,
not a spouse, is the responsibility of the giver, not
the recipient.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH