Dan Lanciani <ddl[at]danlan.*com> wrote:

- quote -

My last sentence quoted above is incorrect. I should not
post so late in the evening. ;-) By my reading of Pub 550,
you do not need to pay tax on the market discount until the bond
is sold (or called, matured, or partly refunded) -- unless you have
elected to do so, after which point (again by my reading of Pub 550)
you must continue to do so, including for any other taxable bonds.
But if you never make such an election I think you're in the clear,
and market discount differs from OID in this respect.

- quote -

Good question. I would think if the bond goes flat the TP would
be justified not including any remaining market discount
as income, and if it's finally sold at a low or zero recovery value
the TP would be justified in not reporting any income that
adds up to more than what's been recovered. But I don't
know what's required.

Seems to me best to avoid this particular election.

Steve

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In article <gjkd33$p7d$1[at]blue.rahul.net> , spope33[at]speedymail.org (Steve Pope) writes:
| Seth <sethb[at]panix.com> wrote:
|
| > Your basis is the price you paid (not including accrued interest) plus
| > (minus) accretion.
|
| I would fine-tune this to say, instead of accretion, "market
| discount/premium, or OID, that you have previously reported as
| interest income".
|
| If you buy a taxable bond that is distressed, and it only becomes
| more distressed as you hold it, it is not accreting anything
| in an accounting sense. But in a tax sense, you may have to pay
| tax on the market discount anyway, the only exceptions being if it
| is de minimis, or trading flat, and even if you're never
| going to see any recovery of the imputed discount.

At what time do you pay the tax on market discount that is not
de minimis?

| I have not heard of any argument that it works differently
| for junkier bonds with wide spreads. I expect a rash of
| such scenarios as we move further into the default cycle:
| tax due on payments never made by a bond that defaults.

Does default of the bond accelerate payment of the tax on market
discount?

Dan Lanciani
ddl[at]danlan.*com

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Seth <sethb[at]panix.com> wrote:

- quote -

I would fine-tune this to say, instead of accretion, "market
discount/premium, or OID, that you have previously reported as
interest income".

If you buy a taxable bond that is distressed, and it only becomes
more distressed as you hold it, it is not accreting anything
in an accounting sense. But in a tax sense, you may have to pay
tax on the market discount anyway, the only exceptions being if it
is de minimis, or trading flat, and even if you're never
going to see any recovery of the imputed discount.

I have not heard of any argument that it works differently
for junkier bonds with wide spreads. I expect a rash of
such scenarios as we move further into the default cycle:
tax due on payments never made by a bond that defaults.

Steve

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <H%t6l.103075$_Y1.5274[at]bgtnsc05-news.ops.worldnet.att.net> ,
Gil Faver <rowdy'sboss[at]xxyz.com> wrote:

- quote -

Your basis is the price you paid (not including accrued interest) plus
(minus) accretion. When you sell it, your capital gain is the price
you received (again, not including accrued) less your basis.

Seth

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Gil Faver <rowdy'sboss[at]xxyz.com> wrote:

- quote -

Anytime you sell a bond, or it matures or is called, you must report
a gain or loss depending on its basis relative to its sale price.
There are many scenarios in which you may have a gain:

(1) The purchase price was lower than the face value, but by
less than the de-minimus amount, and so OID was never reported.

(2) The purchase price was lower than the face value by
more than the de-minimus amount but TP never reported the
OID.

(3) The sale price was above the face value.

(4) A zero-coupon bond was purchased at less than the
discounted amount as reflected by its OID.

(5) A zero-coupon bond was sold prior to maturity at
more than its discounted amount as reflected by its OID.

There are lots of other scenarios as well.

In all cases you compute the basis and report any gain/loss.

Hope this helps

Steve (not a tax professional)

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Arthur Kamlet" <kamlet[at]panix.com> wrote in message
news:gj6old$49v$1[at]reader1.panix.com...
- quote -

I have looked at Pub 550, and my question on this topic is this: under what
circumstances would an individual have a capital gain when investing in
bonds or CDs?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Arthur Kamlet" <kamlet[at]panix.com> wrote in message
news:gj6pg1$51k$1[at]reader1.panix.com...
- quote -

Thanks. I forgot to mention this was not an initial offering, but bought on
the secondary market. A rather vital piece of information.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <gj6l6c$nds$1[at]blue.rahul.net> ,
Steve Pope <spope33[at]speedymail.org> wrote:
- quote -


FYI the de minimis amount for OID is 0.25% x Number of years between
issue and maturity dates.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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Reggie <Reggie[at]wantsnospam.com> wrote:

- quote -

Yes, if it's de minimus. If it's too great of a discount
then you have to impute OID each tax year.

Steve (not a tax professional)

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <EiA5l.237826$Mh5.151[at]bgtnsc04-news.ops.worldnet.att.net> ,
Reggie <Reggie[at]wantsnospam.com> wrote:
- quote -

Well, that depends.

Was it bought as an IPO? Was its term for not more than one year?

Was it a US Savings bond?

Have you read the Original Issue Discount information in IRS
Publication 550?
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

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if I buy a CD or bond under par, is that amount a capital gain upon
redemption?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >