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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I inherited a muni-bond with a value of 21,345. The bond matured

Resolved Question:

I inherited a muni-bond with a value of 21,345. The bond matured and I received the face value of 20,000. Is this a Capital Gain/Loss?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

DearCustomer

 

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?

 

 

Customer: replied 5 years ago.
I got the bond on 3-7-07

It matured on 8-1-08

I received periodic tax-free interest payments.

I made no premium paments
Expert:  Ed Johnson replied 5 years ago.

DearCustomer

 

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

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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