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Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Tax stuff from Zions, cost basis Date: 3/6/2012 5:36 PM
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blacktreechaser,

You wrote, I see on the 1099-B that Zions gave me, the cost basis of all my bond transactins was NOT reported to IRS. And on the tax basis figure they gave me, its always wrong, because they always leave out the accured interest I paid when I first bought the bonds.

Ok, this may mark me as a novice bond investor so let me explain first. Most of my fixed income purchases have been preferreds and all of my bonds have been held in an IRA, so I've not had to deal with ***any*** of these tax issues. (I hold preferreds in my taxable accounts too, but preferreds don't have this issue.)

I have to wonder if Zion's is not correct here - or at least previously accounted for the prepaid interest (the amount paid to the seller as accrued interest at the sale) on a 1099-INT. I would have thought the proper handling of a bond's prepaid interest might simply be to deduct it from the interest you receive as reported on your 1099-INT in the year you acquired the bond.

Prepaid interest is essentially an interest payment you're paying yourself and getting back at the next regularly scheduled coupon payment. I suppose recapitalization works out more or less the same as an immediate deduction - though choosing one or the other could shift the year in which some of your tax burden is recognized.

But are you sure Zion's didn't reduce your 1099-INT by the amount(s) you think they are missing on this year's 1099-B in the year you made the purchase? If so, that might explain why their numbers seem to be off.

BTW, I'm no tax accountant, attorney or CPA, so take my thoughts with a grain of salt and do your own due diligence. You might start by posting on the Tax Strategies board.

- Joel
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