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Submitted By: Travis
Answered: September 10, 2013 8:30 am
Answered: September 10, 2013 8:30 am
Does the tax basis of a municipal bond include accrued interest?
If you take a deduction for a bond premium, you must reduce the basis of the bond by this amount. If you sell the bond before maturity, you’ll have a capital gain if the selling price exceeds your bond’s basis. However, if you hold the bond to maturity, then the entire bond premium will have been amortized so that you have neither a gain nor loss on the redemption of the bond.
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Tax Glossary
Capital gain or loss
The difference between amount realized and adjusted basis on the sale or exchange of capital assets. Long-term capital gains are taxed favorably. Capital losses are deducted first against capital gains, and then again up to $3,000 of other income.
