My 2007 Tax Reporting Statement from Fidelity reports this on bonds
purchased. It also adjusts the cost basis for the accrued interest on bonds
I have sold.
Do I just ignore the accrued interest, since Fidelity keeps track of it?
Accrued interest paid on bonds purchased gets deducted from interest
income on the bonds.
Likewise, accrued interest received on bonds sold gets added to the
interest income on the bonds.
The brokerage firm keeping track of the info should be helpful in
preparing your tax returns.
You should give this info to your CPA/tax professional.
It is not to be ignored.
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Correct, but one more question. Does the accrued interest also affect
the cost basis and proceeds for capital gain purposes? Say you bought
bonds for $10,200 of which $200 was for accrued interest, and you sell
the bonds for $11,400 of which $300 is for accrued interest. Then for
capital gains, the profit is (11400-300)-(10200-200)00. As long as
Fidelity subtracts the accrued interest from both the cost and the
sale, it should be OK. Is this right?
This doesn't make sense. When I buy a bond at my brokerage, it says
for example
Face Value = 10,000
Trade Type = Principal
Issue = T Note
Coupon = 4.875
Maturity = 08/31/2008
Qty = 10
Price = 101.76562500
Principal = $10,176.56
Accrued Int = $231.70 (173 days)
Trans Fee = 0
Net Money = $10,408.26
So what I pay for the bond is $10,408.26.
But the principal is $10,176.56, and I believe this is what should be
used in the capital gain calculation when you sell the bond.
The interest of $231.70 gets subtracted out of my net interest for the
year. At 4.875% I should get $487.5 a year, so my interest repoted on
Schedule B will be either 487.50-231.70%5.8, or 487.50 on one line
and (231.70) on the next line.
In article ,
You are mixing cost basis of the bond, with paid and accrued interest.
You will reduce your bond's interest income by the accrued interest
you paid. But you will not use either interest received or accrued
interest paid to change your cost basis.
But the cost basis of the bond is the principal, right? The amount
you pay from your account to actually buy the bond is the principal
plus accrued interest. I guess this is what an end user means when
they say I paid X for the bond (X dollars went out of my account and I
got N bonds in return), but that X dollars was for bonds and interest.
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