Treasury Bonds

[blh1218]

My client cashed in $13,275.00 in Treasury bonds and received a 1099-INT from the Department of Treasury for $20,899.65. I would like to think that the difference between basis and the final payment is what should be subject to tax.

[Accountant-Man]

Not necessarily. Some bonds were sold at 50% of face value, therefore the difference between cost and face was interest income. And if they were held past maturity and they continued to accrue interest then that would also be interest income.

IE, $500 face value bond sold for $250, cashed in and received $700. $450 is income.

[blh1218]

Thank you for your response, but what I do not understand is, the face value of the bonds that were redeemed is $13,275.00. Even it was 50% discounted how could the entire $20,899.65.

[Accountant-Man]

How much cash was received?

[blh1218]

the 1099-INT from the Department of the Treasury indicated $20,899.65 bu the face value of the bonds is $13,275.00.

[Accountant-Man]

You still haven't told us how much actual cash you received. ($34,174.65?)

[blh1218]

I did get the answer regarding the US Treasury Bonds, as it turned out the person received $27,980.00, the bonds were bought long ago 50% discount. the face value was $13,375.00.