Tax Answers

March 16, 1994

Here is an answer from members of the Maryland Association of Certified Public Accountants to a reader's tax question. The Sun will publish answers through April 15.

Q: How do I report to the Internal Revenue Service and the State of Maryland the amount reported on Form 1099B for gross proceeds of a bond redemption? Bonds are 1982 CDA, Maryland, Series C, tax-free municipal bonds purchased in 1984 for $500 and redeemed in 1993 for $1,100. How do I show the $1,100 on Form 1099B in my tax returns?

A: On Schedule D. You will report the $1,100 selling prices, your "basis," and your net taxable gain or loss.

Basis, which is your adjusted purchase price of the bond, is what creates some difficulty in reporting this transaction. To properly calculate your basis in the bond, you must determine the original issue discount (OID). The OID is the difference between the original offering price of the bond and the face value. This discount is amortized, or added to income, equally over the life of the bond. The amortization, or income, is not taxable, but it does add to your basis of the bond and therefore reduces the gain when it is redeemed.

You may need to call a broker to determine the OID.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary. Consult with a tax adviser for specific advice.

Readers may submit questions by phone, mail or fax. Selected questions will be answered in The Sun and The Evening Sun.

To ask a tax question by phone, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford County 836-5028, and in Carroll County 848-0338. Using a touch-tone phone, enter 6120 after you hear the greeting.

Written queries may be sent to TAX QUESTIONS, The Baltimore Sun, Business News Department, 501 N. Calvert St., Baltimore 21278. Fax questions to the Business News Department at (410) 783-2517. Callers are encouraged but not required, to leave their names and phone numbers should questions need to be clarified. Names will not be published. Questions will not be answered by phone.

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