I have some Variable Rate Lehman Notes - now worthless. My broker report says I owe OID on these bonds. It's like a double kick! Do I actually have to pay OID on worthless bonds? If not, is there any chance of recovering the OID from prior years?
Thanks
Not that I know of. I'm in a similar but not identical situation, having bought Washington Mutual bonds which made three interest payments before becoming worthless. I would like to be able to call these interest payments a constructive return of capital, but I cannot. So far as I know.
Steve
Did you purchase the bonds at a discount? If so, and you've made an election to amortize all your taxable bonds, then you report the OID as interest and increase the cost basis of your holdings each year. If you disposed of the bond (your broker may have a form to dispose of worthless securities) you can claim a capital loss -- but be sure to use the higher adjusted cost basis.
I believe that OID is always reported each year you hold a bond, regardless of any election, whereas market discount is subject to a discretionary election.
Steve
You're right. Thanks for the info. I see it here
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