|
|
|
|
|
A taxpayer inherits Ca tax exmept muni bonds from an estate and uses the date of death value as their basis. The date of death value is at a premium. When the taxpayer then holds the bonds to maturity and they are redeemed at the face value, it is my understanding in this case they could recognize a loss between the date of death value and face value on redemption.
Is this different from someone who purchases tax exempt bonds at a premium and then must amortize the bond premium and adjust the basis of the tax exempt bond by the amount amortized each year.
|
|
|
|
|
Power Member
Group: Forum Members
Last Login: 3/12/2011 12:58:57 PM
Posts: 147,
Visits: 823
|
|
I disagree. I believe that the *step up* in basis is treated as a purchase at the date of death. If you hold the bonds to maturity, amortization is required. If the bonds are sold before maturity there will be some loss due to the unamortized premium.
Mary Kay Foss
|
|
|
|
|
Member
Group: Forum Members
Last Login: 1/3/2012 10:46:42 AM
Posts: 42,
Visits: 787
|
|
Mary Kay Foss (3/19/2006)
I disagree. I believe that the *step up* in basis is treated as a purchase at the date of death. If you hold the bonds to maturity, amortization is required. If the bonds are sold before maturity there will be some loss due to the unamortized premium.
Just to add a bit to Mary Kay's comment: Code section 171(a)(2) has the general rule requiring amortization of premium for tax-exempt bonds. There is no exception for inherited bonds. If you hold bonds to maturity, there would be no taxable gain or loss. If you sell before maturity, there would be a gain or a loss, depending on whether the proceeds are more or less than the amortized basis of the bond.
For fiduciary accounting purposes, there is a loss when the bonds mature. That's for accounting purposes, not for tax purposes.
If you have any bonds at discount, those will be treated very differently for tax purposes.
bill downs
|
|
|
|
|
|
|
| Actually, based on the IRC a premium has to be "paid." Inherited munis are simply revalued (stepped-up)--the beneficiary never paid anything. My understanding is that a loss can be taken on inherited muni bonds.
|
|
|
|
|
Member
Group: Forum Members
Last Login: 1/3/2012 10:46:42 AM
Posts: 42,
Visits: 787
|
|
looking at code section 171(a) and (b) i don't see the word "paid"
btw, since you didn't log in or sign your posting, you are "anonymous"
bill
|
|
|
|