Accrued interest paid on bond purchased - adjustments & cost basis

[ea_rva aka acctgtaxmatters]

Client purchased bond in 2012 for $25,215 - includes $215 of accrued interest. Bond is redeemed in 2022 and reported on 1099-B as noncovered.

Under interest income:

Bond is redeemed in 2022 reporting $612 in interest income with $72 bond premium interest offset.

1) Shouldn't the $72 bond premium = $215 - do I increase the offsest up for that?

Under 1099-B Box E basis not reported:

Bond proceeds are $25,000 and cost basis $25,000; it then lists "original cost basis" of $25,215

2)  If I adjust up for the additional interest,  I  report $25,000 as the cost basis correct?

3) Is there a scenario where you use the $25,215 as your cost basis on Sch D? 

Thanks in advance for the help!

[sjrcpa · Accepted solution]

The bond premium paid at purchase gets amortized over the term of the bond, or call date if earlier. It reduces interest income from the bond. It is likely the brokerage has supplied this info every year in the 1099 package. They are saying it has been fully amortized at the time of the redemption.

Sounds like your bond was a 10 year bond redeemed in 2022. No gain or loss on redemption.

And, for $215 I would not worry about it at all.

[ea_rva aka acctgtaxmatters]

Thanks so much - you filled in all the blanks and then some!

Client is a retired CPA (87 years old) who manually completed all his returns when he practiced...very detail oriented. He wanted to understand it as well -  LOL thanks again!