On Dec 23, 1:23*am, rdad...[at]panix.com (Dick Adams) wrote:
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cap gains and if cap gains not long term? even on a 20 year bond?
wheeler

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On Dec 23, 1:23 am, rdad...[at]panix.com (Dick Adams) wrote:

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What happens if the principal decreases? If I read the mentioned
document correctly, you cannot deduct the loss (capital loss)? Seems
strange. If you pay tax on the principal, is it capital gain, and if
so then long term or short term, and does it add to your cost basis?

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wuffa <magewuffa[at]gmail.com> wrote:

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The answers are at:
http://tinyurl.com/7hgdet
http://www.treasurydirect.gov/indiv/...s_tips_tax.htm

You pay federal income taxes on both interest received and
principal accrued annually.

Dick

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Greeting all.
how does one deal with tips(Treasury Inflation Protected Securities) I
know I pay taxes on the interest payments but do i pay the principal
increase when? when the bond is due? or each year it increases?
for info here more info on tips:
unlike a traditional government bond, the principal and interest
payments on TIPS adjust to track changes in inflation. Specifically,
the principal and interest on TIPS are indexed to the CPI-All Urban
Consumers (CPI-U) so that increases in consumer prices are directly
translated into higher principal and interest payments on TIPS.
For example, consider a $1,000 ten-year TIPS note with a 2.5% coupon
in an environment of 4% annual inflation. Initially, the interest paid
would be 2.5% of $1,000, or $25.00. But the principal on the TIPS note
will adjust upward on a daily basis to match the inflation rate,
reaching $1,480 (4% per year, compounded annually) at the end of 10
years. Although the coupon rate on the TIPS note will remain fixed at
2.5%, the actual interest payments will also rise as the value of the
principal increases; in the tenth year, the annualized interest
payment will be 2.5% of the inflation-adjusted principal, or 2.5% of
$1,480, which is $37.00. At maturity, the investor who purchased the
TIPS note when it was issued for $1,000 will receive the inflation-
adjusted principal of $1,480.

thanks all
marcus cornelius felix/wuffa/william wheeler

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