With regular bonds, is the OID always positive? Yes. The OID amount makes up for the discount, which was always positive on something like a zero-coupon bond. It's only the wackiness of TIPS that they can adjust negatively.OID interest should go on Schedule B just like other interest. Report on line 1 all of your taxable interest. Interest should be shown on your Forms 1099-INT, Forms 1099-OID, or substitute statements. http://www.irs.gov/instructions/i1040sa/ar02.htmlThe principal value of your TIPS fell from 9/6/2006 to 12/31/2006, thus causing negative OID.Value 9/6/2006: 1256.54Value 12/31/2006: 1249.33So you'd have negative OID of about $7.21 per $1,000.Now, what to do with negative OID. It looks like most people can take negative OID and count it as an offset against coupon income from current or previous years.http://www.treasurydirect.gov/instit/statreg/auctreg/auctreg_gsrintax.pdf(see page 620, paragraph (f)(1) at bottom of second column)However, because you just bought the bond and don't have any coupon income in current or previous years on these bonds, you might have to carry the loss forward.Don't treat this as hard and fast advice - it looks like a grey area or at least is difficult to figure out.dan
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