Accounting & Bookkeeping & Small Business Forum

[bobsolebello]

Taxpayer received Reportable Capital Transactions on a 1099-B, Box 2a showing total proceeds from securities of $7,530.40. This amount represents the total proceeds to include on Schedule D to be compared with the cost or other basis. The taxpayer holds 20 units in the fund described as New york Insured Muncipals Income Trust Series 125 in which his inherited basis is $1000/unit. Assuming this is taxpayers first year in which proceeds were reported. How should he calculate his basis for purposes of making the compairson and calculating gain or loss? The investments in units is constant but the value of those units is constantly changing because of securities added or removed from the portfolio. The word PRINCIPAL appears next to the date of the transaction on the supporting document. What is the simplest way to calculate the basis? Is there anything special about the way this is reported on Schedule D or elsewhere? Is this to be construed as a return of capital and if so how to report and track into future years?

[BillBro]

Bob, I'm a little confused about some of your questions, but I will try my best to give you some helpful comments.

Quote: The taxpayer holds 20 units in the fund described as New york Insured Muncipals Income Trust Series 125 in which his inherited basis is $1000/unit. Assuming this is taxpayers first year in which proceeds were reported. How should he calculate his basis for purposes of making the compairson and calculating gain or loss?

The basis will always be what it was at the beginning and will not change. Hence, his basis for 20 units at $1000/unit is $20,000, whether this is the first year or twenty-first year.

Quote: The investments in units is constant but the value of those units is constantly changing because of securities added or removed from the portfolio.

If this was being reported as dividends on a 1099-DIV, the fluctuation would matter, but on a 1099-B, which is only for sales of stocks, bonds, etc., the fluctuation from year to year is irrelevant. The only thing that matters is the sale price.

The question I have is, does the proceeds of $7,530.40 reflect a total sale of the asset, in which case your client took a loss of >$12,000, or does it reflect a sale of only some of the shares? If it is only some of the shares, we need to know how many, in order to determine if there was a loss or gain. For example, at $1000/share, if he sold 7 shares, he has a gain of $530.40. In that case, in future he could sell no more than 13 shares. If it was 10 shares, he took a loss of <$3,000, and in future could sell no more than 10 shares. But as it is, there is too little data to be more specific.

Hope that helps. Sorry I didn't see your post sooner, if this is info you were looking for in time to file a return on 4/17.

Bill

[bobsolebello]

My client and I concluded that this was a return of principal and posted it as such to the tax return showing the proceeds on Sched D in the usual manner but reversing the amount on the same form. My client did not sell any units. He still owns 20 units @ $1000/unit (his dad's original investment which my client inherited. The fund apparently has not matured and will continue until the project has been completed. The proceeds are notated as a return of principal. Neither my client nor I could find any source material that would clarify how this should be recorded in the tax return if at all. I think the treatment is unique to Municipal Bond Funds but at this point neither my client nor I are certain that we have handled it correctly on the return. Perhaps someone on this forum can offer an explanation of how this normally would be reported.