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<<I have some zero coupon municipal bonds. If I sell them, how would I compute basis?....Can I add amortization to the original cost to arrive at basis?>>

Quick answer-Yes, you amortize the amount of the discount and would add the accrued amount at the time of sale to your original cost to determine basis on the sale.

Unfortunately, the calculation of accrued discount is done at a constant rate method, rather than a simpler straight line calculation.

Technically, you should do this calculation each year and report the annual accrued OID amount as tax exempt income (and somewhere in your records, increase the basis of your OID bonds).

For more info, head to the IRS web site and check out Publication 1212.

Hope that helps,


(Who is SO glad that April 15th has come and gone!)
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