Thank you for your question,
What month and year did you inherit this muni-bond?
When did you mature the bond?
Did you make any premium payments on this bond during the time you held it?
Thank you. IN that case, the cost basis for this was its fair market value as of the date of death of the decedent. That value should be listed in the estate tax return.
It is that value you use for a cost basis when determining capital gains.
It sounds as though you would have a capital loss:
Rules about inherited assets (bonds) say you inherit at FMV on DOD,which is your basis. Pub 550 and 551 talk about amortizing premium, which is definied as (generally) the value in excess of call or par. See the definition of "premium" on page 35 of Publication 550. Pub 550 discusses amortization of Premium non-taxable Bonds and the amotization ALWAYS starts with the taxpayers' basis, which , if inherited, is the FMV at DOD which may or may not be at a premium to call or par