Tax treatment zero coupon municipal bonds

About Municipal Bonds

The interest accrues at the interest rate you obtained when you bought the bond.

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Many municipal bond issues allow the issuer to call or redeem all or a portion of the bonds at a premium or at par before the bonds matures. Get the latest info on professional trends, management, and leadership skills on CPA Now. Zero-coupon bond. My simplified understanding is that OID is essentially an annual imputed interest which is reinvested back into the bond, much the same as reinvesting distributions from mutual funds. Fidelity Learning Center.

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Municipal Bonds

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Introduction to Zero-Coupon Municipal Bonds

Search instead for. Did you mean:. Level 2. Zero coupon municipal bonds maturation In , I purchased zero coupon municipal bonds. Over the years, tax free municipal bond interest has been imputed annually as the market value of the bonds increased. TurboTax does not appear to be able to handle this. If I enter the original purchase price and the redemption price, I will incur a huge capital gain which is wrong on so many levels. Topics: TurboTax Deluxe Windows. Accepted Solutions. Level Zero coupon municipal bonds maturation Presumably, if done properly, your financial services statement on account showing the zero coupon bond will present a cost basis not of your original cost but added to that each of the imputed but not received interest amounts that accumulate over the life of the bond.

Zero coupon municipal bonds maturation Wow, Scruffy! Thank you for your immediate, comprehensive response! Let me expound on the details. The bond was slightly more than three years old when purchased and, in , reporting requirements for the brokerage were not as comprehensive as they are today.

Bond Basics: Zero-Coupon Bonds

I don't think that the imputed interest was reported for the first two decades or so. Because they are sold at a substantial discount from face amount, you can purchase more zero coupon bonds for your money than other types of bonds.

The greater the number of years a zero coupon bond has until maturity, the less you have to pay for it. Zero coupon bonds allow investors to invest a modest amount of money today and know exactly how much money they will receive on a specified future date. Zero coupon municipal bonds provide investors with the opportunity to lock in a particular rate of return, without having to worry about reinvestment risk or interest rates in the future. Investors in securities that pay interest semiannually may not always achieve a total realized compounded yield equal to the quoted yield to maturity they expected when they purchased their holdings.

Depending on future prevailing interest rates, their interest payments may be reinvested in lower or higher yielding vehicles.

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