Uncovered Tax Lots Question

I received a Composite Statement of 1099 Forms from my brokerage. One tax-exempt bond purchase was listed in the 1099-B as a Class B transaction that didn’t have its Cost Basis reported to the IRS. On the 1099-INT Summary Information page in the section of items not reported to the IRS, it reports that I paid a Bond premium $340.15 for the tax-exempt bond.

I’m not sure why this particular tax-exempt bond was not included in with the other tax-exempt bonds that were reported as a Class A transaction reported to the IRS. Or, that the bond premium wasn’t included on the 1099-INT in box 13, Bond premium on tax-exempt bonds.

In TurboTax, you are required to report the actual securities involved in the Class B categories. The cost basis for this tax-exempt bond reported on 1099-B is not the price that I paid for it; however, it would be if I added the bond premium not reported to the IRS from the 1099-INT to the bond’s cost basis.

TurboTax allows you to adjust the cost basis of securities in the Class B categories. Do I simply increase the cost basis by the premium that I paid? Do I need to do something else?

The sale of a tax-exempt bond will be a noncovered transaction if the bond was acquired before 2014. Bond premium on these bonds is also “noncovered” and not reported on Form 1099-INT. For the sale, the cost basis you report should be the actual acquisition price adjusted for the cumulative amount of bond premium you reported. If you held the bond to maturity, there should be $0 capital gain/loss.

Ira

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The sale of a tax-exempt bond will be a noncovered transaction if the bond was acquired before 2014.

The tax-exempt bond in question was acquired on 23 JUN 2021. All of the tax-exempt bonds that I have purchased were acquired after 02 AUG 2019. All of the tax-exempt bonds were sold on 07 DEC 2021. All of the tax-exempt bonds except this one were reported as covered lots on Form 1099-B and the tax-exempt bond premiums were reported in box 13 on Form 1099-INT.

What does the “Bond premium on tax-exempt obligations (covered lots)” reported in box 13 on Form 1099-INT actually represent?

The tax-exempt bond in question was acquired on 23 JUN 2021. All of the tax-exempt bonds that I have purchased were acquired after 02 AUG 2019. All of the tax-exempt bonds were sold on 07 DEC 2021. All of the tax-exempt bonds except this one were reported as covered lots on Form 1099-B and the tax-exempt bond premiums were reported in box 13 on Form 1099-INT.

What does the “Bond premium on tax-exempt obligations (covered lots)” reported in box 13 on Form 1099-INT actually represent?

I don’t know why that bond was noncovered. You might have to ask the broker.

Bond premium is the excess over par that you paid for the bond (typically that’s due to the stated interest rate being higher than the prevailing market rate at the time you purchased it.) It reduces tax-exempt income and decreases your cost basis in the bond. The concept is to prevent you from creating a capital loss out of interest you didn’t receive.

Ira