Reporting tax-free zero coupon bond held to maturity

Forum|Forum|1 year ago
February 11, 2025
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I purchased a tax-exempt zero coupon bond in 1993 for about $6,000. I held the bond until it was redeemed in 2024 for $50,000. I received a 1099B marked as following:

Box 1c Date Sold is listed
Box 1d Proceeds: $50,000
Box 1e Cost Basis is blank
Box 5, noncovered security is checked
Box 6, Gross proceeds is checked

Since this is a tax-exempt bond (I have a letter from the IRS agreeing to the tax-exempt status), I should not have to pay taxes on the proceeds. How do I report this? The instructions for the Turbotax 1099B says I must enter that exactly as on the paper 1099B I received, so I cannot adjust the cost basis there. Do I adjust the cost basis on Turbotax form 8949? I little guidance is appreciated. Thanks!

mglauner

It is only the interest from a municipal bond that is federally tax-exempt. Capital Gains and losses on municipal bonds are reportable and taxable. Once you enter your correct Cost Basis, you may have a small gain or a small loss in most cases.

Your Cost Basis is the amount you paid for the bond, plus accumulated interest over the years (plus any broker costs), which should be close to the 50K proceeds you received.

There is a box to check when entering your 1099-B to indicate you need to Adjust Cost Basis. On the next screen you can enter your correct Cost Basis.

If you buy a bond when it is issued and hold it until maturity, you generally won't have a capital gain or loss, so you could enter 50K as your Cost Basis if you can't calculate the actual amount of interest received over the years.

Here's more detailed info on bonds in this Guide to Investment Bonds and, if you had other costs/discounts, this article on Cost Basis for Bonds may guide you.

Jon-the-taxpayerAuthor

Employee

Thanks. I found and entered the 1099B information and clicked the box indicating that I had more of the cost basis information. Turbotax automatically entered my additional information on Form 8949. I appreciate your help!