Tax Law (Questions About Taxes)/Called Municipal Bonds

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Question
Two different tax-free municipal bonds I owned were called before maturity in 2013.

Bond #1 - Bought in secondary market in Oct 2007 at premium of 100.563, with maturity date of Aug 2018.  Called in Aug 2013 at price of 101.  By Aug 2013, amortization of bond premium to maturity had lowered basis from 100.563 to 100.298.  Do I have a taxable long-term gain of 0.702 per bond (101 - 100.298)?

Bond #2 -  Bought in secondary market in Feb 2008 at premium of 105.330, with maturity date of Mar 2019.  Called in Mar 2013 at price of 100.  By Mar 2013, amortization of bond premium to maturity had lowered basis from 105.330 to 102.999.  Do I have a taxable long-term loss of 2.999 per bond (100 - 102.999)?

I have found conflicting advice on the internet that (1) both transactions caused a taxable gain/loss, or (2) neither transaction caused a taxable gain/loss, or (3) call of Bond #1 caused a taxable gain, but call of bond #2 did NOT cause a taxable loss.

Please advise.

Answer
Martin,

Thanks for your question.

Assuming that the bonds are not tax free bonds, you can take the gain and the loss on each respective bond.

If one or both is a tax free bond, you have a taxable gain but a non-deductible loss, as the case may be.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

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I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

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DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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