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I should have asked a couple weeks ago but better late than never. I bought some corporate bonds in the secondary market which mature November 2003. The bonds are held in my brokerage account.

1. I paid accrued interest of $216 in addition to purchase price. Nov.10, the coupon date, I received the full coupon interest of $230, of which $216 is essentially a refund of the accrued interest I paid. So my net interest income for this period is $14. Is that what the 1099 from my broker will show? I intend to ask my broker about this but wondered how other brokerage firms handle it.

2. I paid a $110 premium for $8000 face value. If I sell the bonds in the secondary market before maturity, I would report a capital gain or loss on Sch. D using $8110 as cost basis. If I hold the bonds to maturity, which is my intention, can I show the bond payoff like a sale on Sch. D and take a $110 capital loss?

Appreciate any advice you can offer. I've done these kinds of transactions in my IRA but this is the first in the taxable account and I never gave tax treatment a thought at the time.

Bill
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1. I paid accrued interest of $216 in addition to purchase price. Nov.10, the coupon date, I received the full coupon interest of $230, of which $216 is essentially a refund of the accrued interest I paid. So my net interest income for this period is $14. Is that what the 1099 from my broker will show?

Yes. You report al lthe interest and make an offsetting entry on Schedule B for "accrued interest".

2. I paid a $110 premium for $8000 face value. If I sell the bonds in the secondary market before maturity, I would report a capital gain or loss on Sch. D using $8110 as cost basis. If I hold the bonds to maturity, which is my intention, can I show the bond payoff like a sale on Sch. D and take a $110 capital loss?


That's the easiest way, but you can amortize the premium if you want. See Pub 550 (I think). ed

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billiam wrote:

I should have asked a couple weeks ago but better late than never. I bought some corporate bonds in the secondary market which mature November 2003. The bonds are held in my brokerage account.

1. I paid accrued interest of $216 in addition to purchase price. Nov.10, the coupon date, I received the full coupon interest of $230, of which $216 is essentially a refund of the accrued interest I paid. So my net interest income for this period is $14. Is that what the 1099 from my broker will show? I intend to ask my broker about this but wondered how other brokerage firms handle it.


The broker will report the gross $230 figure on the 1099. On Form 1040 Sch B report the actual 1099 figure then on next line input "-$216 accrued interest on bond purchases".

2. I paid a $110 premium for $8000 face value. If I sell the bonds in the secondary market before maturity, I would report a capital gain or loss on Sch. D using $8110 as cost basis. If I hold the bonds to maturity, which is my intention, can I show the bond payoff like a sale on Sch. D and take a $110 capital loss?


That's the best way of accounting for it.

Bill

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