Gain on Brokered CD Purchased at Discount- Is Gain Taxable at Maturity?
frank1492
were purchased at a discount below face value and generated a gain
(long term) of over $1000 at maturity. I would have thought a 1099-B
would have been generated, but this info is only listed under "details
of LT gain (loss) 2009."
I would think this gain would be treated the same as the gain
from the sale of a stock or bond. Is there some reason why it isn't,
or do I have to report it as if it were the same?
Many thanks for your help!
Frank
P.S. I am in a 25% tax bracket so I must report capital gains.
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D. Stussy
news:688tr5pfthe885odd...@4ax.com...
> In my brokerage account, I had two CD's that matured in 2009. Both
> were purchased at a discount below face value and generated a gain
> (long term) of over $1000 at maturity. I would have thought a 1099-B
> would have been generated, but this info is only listed under "details
> of LT gain (loss) 2009."
> I would think this gain would be treated the same as the gain
> from the sale of a stock or bond. Is there some reason why it isn't,
> or do I have to report it as if it were the same?
> Many thanks for your help!
> Frank
> P.S. I am in a 25% tax bracket so I must report capital gains.
CDs generally generate interest income, not capital gain income.
Tom Healy CPA
> In my brokerage account, I had two CD's that matured in 2009. Both
> were purchased at a discount below face value and generated a gain
> (long term) of over $1000 at maturity. I would have thought a 1099-B
> would have been generated, but this info is only listed under "details
> of LT gain (loss) 2009."
> I would think this gain would be treated the same as the gain
> from the sale of a stock or bond. Is there some reason why it isn't,
> or do I have to report it as if it were the same?
> Many thanks for your help!
> Frank
> P.S. I am in a 25% tax bracket so I must report capital gains.
>
> --
should have been reported as interest income there (perhaps split
between two tax years), so that the basis of the CD at maturity would
be its maturity value. No capital gain.
frank1492
at a discount, so when they matured at face value there was a gain!
(This of course in addition to the interest I received.)
Tom Healy CPA
> But these are *brokered* CD's (Smith Barney) and they were sold to me
> at a discount, so when they matured at face value there was a gain!
> (This of course in addition to the interest I received.)
>
> On Fri, 9 Apr 2010 09:26:36 EDT, "D. Stussy"
>
>
>
>
>
> >"frank1492" <frank1...@verizon.net> wrote in message
> >news:688tr5pfthe885odd...@4ax.com...
> >> In my brokerage account, I had two CD's that matured in 2009. Both
> >> were purchased at a discount below face value and generated a gain
> >> (long term) of over $1000 at maturity. I would have thought a 1099-B
> >> would have been generated, but this info is only listed under "details
> >> of LT gain (loss) 2009."
> >> I would think this gain would be treated the same as the gain
> >> from the sale of a stock or bond. Is there some reason why it isn't,
> >> or do I have to report it as if it were the same?
> >> Many thanks for your help!
> >> Frank
> >> P.S. I am in a 25% tax bracket so I must report capital gains.
>
> >CDs generally generate interest income, not capital gain income.
>
lines: the first line is the original (discounted) price, and the
second line is the adjusted cost (usually face value).
BTW even if you were in the 15% bracket you still need to report
capital transactions. They may be taxed at 0%, but they still need to
be reported (it can affect other places on the tax return, such as
medical or miscellaneous deductions.
D. Stussy
> But these are *brokered* CD's (Smith Barney) and they were sold to me
> at a discount, so when they matured at face value there was a gain!
> (This of course in addition to the interest I received.)
That difference may be OID, which again is interest income, not capital
gain.
Are you certain that the interest reported is less than the sum of the
interest earned plus any discount you received in the purchase?
Salmon Egg
frank1492 <fran...@verizon.net> wrote:
>
> On Fri, 9 Apr 2010 09:26:36 EDT, "D. Stussy"
> <spam+ne...@bde-arc.ampr.org> wrote:
>
> >"frank1492" <fran...@verizon.net> wrote in message
> >news:688tr5pfthe885odd...@4ax.com...
> >> In my brokerage account, I had two CD's that matured in 2009. Both
> >> were purchased at a discount below face value and generated a gain
> >> (long term) of over $1000 at maturity. I would have thought a 1099-B
> >> would have been generated, but this info is only listed under "details
> >> of LT gain (loss) 2009."
> >> I would think this gain would be treated the same as the gain
> >> from the sale of a stock or bond. Is there some reason why it isn't,
> >> or do I have to report it as if it were the same?
> >> Many thanks for your help!
> >> Frank
> >> P.S. I am in a 25% tax bracket so I must report capital gains.
> >
> >CDs generally generate interest income, not capital gain income.
Is this not just what Original Issue Discount (OID) is all about? I
ranted about this a week or two ago even though I am far from being an
expert on the subject. It just is another way Congress has increased our
paper work load over the years from purchase to maturity, just to get a
little more tax earlier. I would like to hear from a true expert whether
I am right or wrong.
Bill
--
An old man would be better off never having been born.
Arthur Kamlet
D. Stussy <rep...@newsgroups.kd6lvw.ampr.org> wrote:
>"frank1492" <fran...@verizon.net> wrote in message
>news:688tr5pfthe885odd...@4ax.com...
>> In my brokerage account, I had two CD's that matured in 2009. Both
>> were purchased at a discount below face value and generated a gain
>> (long term) of over $1000 at maturity. I would have thought a 1099-B
>> would have been generated, but this info is only listed under "details
>> of LT gain (loss) 2009."
>> I would think this gain would be treated the same as the gain
>> from the sale of a stock or bond. Is there some reason why it isn't,
>> or do I have to report it as if it were the same?
>> Many thanks for your help!
>> Frank
>> P.S. I am in a 25% tax bracket so I must report capital gains.
>
>CDs generally generate interest income, not capital gain income.
The interest earned by a CD is interest.
If you have purchased a brokered CD you will receive a 1099B
when selling/redeeming it, and report that sale on Schedule D.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Stuart A. Bronstein
>>CDs generally generate interest income, not capital gain income.
>
> The interest earned by a CD is interest.
I think the point was that sometimes CD's or other debt instruments
that earn periodic interest, are sold for more than face value. And
it's that difference (assuming face value was the original purchase
price), rather than interest per se, that was at issue.
--
Stu
http://downtoearthlawyer.com
Stuart A. Bronstein
> kam...@panix.com (Arthur Kamlet) wrote:
>
>>>CDs generally generate interest income, not capital gain
>>>income.
>>
>> The interest earned by a CD is interest.
>
> I think the point was that sometimes CD's or other debt
> instruments that earn periodic interest, are sold for more than
> face value. And it's that difference (assuming face value was
> the original purchase price), rather than interest per se, that
> was at issue.
Sorry, I had that exactly backwards. OP said he purchased at a
discount and then sold at a higher price. That's separate from the
interest. Though I gather that increase is treated as interest
nonetheless.
John Levine
>discount and then sold at a higher price. That's separate from the
>interest. Though I gather that increase is treated as interest
>nonetheless.
Are you sure? Bonds of a year or less are typically sold at a
discount and redeemed at par, with the difference being the interest.
But longer term bonds are typically sold at par, pay interest twice a
year, and are redeemed at par.* If you buy such a bond and the
prevailing interest rate is different from the coupon rate of the
bond, you'll pay more or less than par to compensate.
Is that gain or loss still considered interest? It seems more like a
capital gain or loss.
R's,
John
* - Yes, I know sometimes they set the coupon and then adjust the
price, but I'm simplifying.
Rich Carreiro
> But longer term bonds are typically sold at par
That's only true for bonds sold at original issue. Bonds sold in the
secondary market will very rarely sell at par. They'll sell at a
discount (possibly a considerable one) if interest rates have risen
since issue and they'll sell at a premium (possibly a considerable
one) if interest rates have dropped since issue.
> year, and are redeemed at par.*
That's true, absent default or various call-protection terms.
> Is that gain or loss still considered interest? It seems more like a
> capital gain or loss.
Rationally it's a capital gain or loss. However, tax law says that
the discount is recognized year-by-year as interest (that's OID, even
(confusingly) when the bond was not bought at original issue) and the
premium is amortized year-be-year as a reduction of interest.
So if the bond is held to maturity its basis is exactly and by
definition equal to its par value and there is neither capital gain
nor loss upon maturity.
--
Rich Carreiro rlc-...@rlcarr.com
Seth
>Are you sure? Bonds of a year or less are typically sold at a
>discount and redeemed at par, with the difference being the interest.
>But longer term bonds are typically sold at par, pay interest twice a
>year, and are redeemed at par.* If you buy such a bond and the
>prevailing interest rate is different from the coupon rate of the
>bond, you'll pay more or less than par to compensate.
>
>Is that gain or loss still considered interest? It seems more like a
>capital gain or loss.
When you buy a bond, you buy it at a yield. If you buy it at a
discount (coupon < yield), the yield is taxable income (the discount
amortizes, and that amortization is considered interest). If you buy
it at a premium (coupon > yield), the premium amortizes and that
amount of the coupon is considered return of capital.
If you sell it before maturity, the difference between your cost +-
amortization and the price you receive is capital gains.
If I buy a bond at par, its price drops, and I sell it to you for $90,
I have a $10 capital loss, and over time you'll have $10 taxable
interest income (in addition to the coupon). If I buy a bond at par,
its price increases, and I sell it to you for $110, I have $10 capital
gain, and over time your taxable interest income is $10 less than the
coupon.
Once upon a time, the principal was considered the bond. This led to
a tax shelter: buy a Treasury for par, strip off the coupons, and sell
the principal for, say, $50. There was an immediate $50 capital loss;
the coupons were interest income, but only as received, over the next
few decades.
Seth