Bond Premium on Tax Exempt Bond

[Max W]

Help!  I'm stuck on this one.  The premium is over $7000 and I'm doing it on Lacerte.

[Roberts]

On tax exempt bonds you are required to amortize the bond premium. Does it show up on the 1099-int? It's box 13.

 

[Max W]

4 hours ago, Roberts said:

On tax exempt bonds you are required to amortize the bond premium. Does it show up on the 1099-int? It's box 13.

 

Yes, it does.  The detail sheet shows this years amort. as well as total.  Does it get reported?  And where?

 

 

[Roberts]

Since they are tax exempt bonds there isn't any interest to reduce. What you are supposed to do is reduce the basis by that amount.

 

If they purchased a tax exempt out of state bond - so it is taxable in their state, I think you can reduce the taxable portion by this amortization. I doubt many people actually do it. For example if you live in Arkansas your bonds pay such a low interest rate, it's probably more profitable to buy a portfolio of slightly more risky California or Illinois bonds and still pay Arkansas income tax on the income.

 

[Max W]

One of the bonds was sold LY and it shows $20,000 proceeds and $20502 Basis,  the $502 being an adjustment, Realized Loss -$502.  

 

[Sara EA]

The Box 13 amount is not reported on the return.  It is a basis adjustment (but only for covered bonds; the adjustment for uncovered ones is somewhere in the detail pages.)  The taxpayer paid more for the bond than its face value.  That "premium" is amortized.  It is part of the cost of the bond, not earnings on the bond (those are reported as interest).  A loss on the sale of a tax-exempt bond purchased at a premium is disallowed.

[Max W]

Thanks, everybody.