Publication 550
taxmap/pubs/p550-021.htm#en_us_publink100010354Words you may need to know (see Glossary)
Basis is a way of measuring your investment in property for tax
purposes. You must know the basis of your property to determine whether you have
a gain or loss on its sale or other disposition.
Investment property you buy normally has an original basis equal
to its cost. If you get property in some way other than buying it, such as by
gift or inheritance, its fair market value may be important in figuring the
basis.
taxmap/pubs/p550-021.htm#en_us_publink100010355The basis of property you buy is usually its cost. The cost is
the amount you pay in cash, debt obligations, or other property or services.
taxmap/pubs/p550-021.htm#en_us_publink100010356If you buy property on a time-payment plan that charges little
or no interest, the basis of your property is your stated purchase price, minus
the amount considered to be unstated interest. You generally have unstated
interest if your interest rate is less than the applicable federal rate. For
more information, see
Unstated Interest and
Original Issue Discount (OID) in Publication 537.
taxmap/pubs/p550-021.htm#en_us_publink100010357There are times when you must use a basis other than cost. In
these cases, you may need to know the property's fair market value or the
adjusted basis of the previous owner.
taxmap/pubs/p550-021.htm#en_us_publink100010358This is the price at which the property would change hands between
a buyer and a seller, neither being forced to buy or sell and both having
reasonable knowledge of all the relevant facts. Sales of similar property,
around the same date, may be helpful in figuring fair market value.
taxmap/pubs/p550-021.htm#en_us_publink100010359If you receive investment property for services, you must include
the property's fair market value in income. The amount you include in income
then becomes your basis in the property. If the services were performed for a
price that was agreed to beforehand, this price will be accepted as the fair
market value of the property if there is no evidence to the contrary.
taxmap/pubs/p550-021.htm#en_us_publink100010360If you receive, as payment for services, property that is subject
to certain restrictions, your basis in the property generally is its fair market
value when it becomes substantially vested. Property becomes substantially
vested when it is transferable or is no longer subject to substantial risk of
forfeiture, whichever happens first. See
Restricted Property in Publication 525 for more information.
taxmap/pubs/p550-021.htm#en_us_publink100010361If you buy investment property at less than fair market value,
as payment for services, you must include the difference in income. Your basis
in the property is the price you pay plus the amount you include in income.
taxmap/pubs/p550-021.htm#en_us_publink100010362If you received investment property in trade for other property,
the basis of the new property is its fair market value at the time of the trade
unless you received the property in a nontaxable trade.
taxmap/pubs/p550-021.htm#en_us_publink100010363You trade A Company stock for B Company stock having a fair market
value of $1,200. If the adjusted basis of the A Company stock is less than
$1,200, you have a taxable gain on the trade. If the adjusted basis of the A
Company stock is more than $1,200, you have a deductible loss on the trade. The
basis of your B Company stock is $1,200. If you later sell the B Company stock
for $1,300, you will have a gain of $100.
taxmap/pubs/p550-021.htm#en_us_publink100010364If you have a nontaxable trade, you do not recognize gain or
loss until you dispose of the property you received in the trade. See
Nontaxable Trades, later.
The basis of property you received in a nontaxable or partly
nontaxable trade is generally the same as the adjusted basis of the property you
gave up. Increase this amount by any cash you paid, additional costs you had,
and any gain recognized. Reduce this amount by any cash or unlike property you
received, any loss recognized, and any liability of yours that was assumed or
treated as assumed.
taxmap/pubs/p550-021.htm#en_us_publink100010365
If property is transferred to you from your spouse (or former spouse, if the
transfer is incident to your divorce), your basis is the same as your spouse's
or former spouse's adjusted basis just before the transfer. See
Transfers Between Spouses, later.
 | Recordkeeping.
The transferor must give you the records necessary to determine
the adjusted basis and holding period of the property as of the date of the
transfer.
|
taxmap/pubs/p550-021.htm#en_us_publink100010367To figure your basis in property that you received as a gift,
you must know its adjusted basis to the donor just before it was given to you,
its fair market value at the time it was given to you, the amount of any gift
tax paid on it, and the date it was given to you.
taxmap/pubs/p550-021.htm#en_us_publink100010368If the fair market value of the property at the time of the gift
was less than the donor's adjusted basis just before the gift, your basis for
gain on its sale or other disposition is the same as the donor's adjusted basis
plus or minus any required adjustments to basis during the period you hold the
property. Your basis for loss is its fair market value at the time of the gift
plus or minus any required adjustments to basis during the period you hold the
property.
taxmap/pubs/p550-021.htm#en_us_publink100010369If you use the basis for figuring a gain and the result is a
loss, and then use the basis for figuring a loss and the result is a gain, you
will have neither a gain nor a loss.
taxmap/pubs/p550-021.htm#en_us_publink100010370You receive a gift of investment property having an adjusted
basis of $10,000 at the time of the gift. The fair market value at the time of
the gift is $9,000. You later sell the property for $9,500. You have neither
gain nor loss. Your basis for figuring gain is $10,000, and $9,500 minus $10,000
results in a $500 loss. Your basis for figuring loss is $9,000, and $9,500 minus
$9,000 results in a $500 gain.
taxmap/pubs/p550-021.htm#en_us_publink100010371If the fair market value of the property at the time of the gift
was equal to or more than the donor's adjusted basis just before the gift, your
basis for gain or loss on its sale or other disposition is the donor's adjusted
basis plus or minus any required adjustments to basis during the period you hold
the property. Also, you may be allowed to add to the donor's adjusted basis all
or part of any gift tax paid, depending on the date of the gift.
taxmap/pubs/p550-021.htm#en_us_publink100010372If you received property as a gift before 1977, your basis in
the property is the donor's adjusted basis increased by the total gift tax paid
on the gift. However, your basis cannot be more than the fair market value of
the gift at the time it was given to you.
taxmap/pubs/p550-021.htm#en_us_publink100010373You were given XYZ Company stock in 1976. At the time of the
gift, the stock had a fair market value of $21,000. The donor's adjusted basis
was $20,000. The donor paid a gift tax of $500 on the gift. Your basis for gain
or loss is $20,500, the donor's adjusted basis plus the amount of gift tax paid.
taxmap/pubs/p550-021.htm#en_us_publink100010374The facts are the same as in
Example 1
except that the gift tax paid was $1,500. Your basis is $21,000, the donor's
adjusted basis plus the gift tax paid, but limited to the fair market value of
the stock at the time of the gift.
taxmap/pubs/p550-021.htm#en_us_publink100010375If you received property as a gift after 1976, your basis is
the donor's adjusted basis increased by the part of the gift tax paid that was
for the net increase in value of the gift. You figure this part by multiplying
the gift tax paid on the gift by a fraction. The numerator (top part) is the net
increase in value of the gift and the denominator (bottom part) is the amount of
the gift.
The net increase in value of the gift is the fair market value
of the gift minus the donor's adjusted basis. The amount of the gift is its
value for gift tax purposes after reduction by any annual exclusion and marital
or charitable deduction that applies to the gift.
taxmap/pubs/p550-021.htm#en_us_publink100010376In 2010, you received a gift of property from your mother. At
the time of the gift, the property had a fair market value of $101,000 and an
adjusted basis to her of $40,000. The amount of the gift for gift tax purposes
was $88,000 ($101,000 minus the $13,000 annual exclusion), and your mother paid
a gift tax of $21,000. You figure your basis in the following way:
| Fair market value | $101,000 |
| Minus: Adjusted basis | 40,000 |
| Net increase in value of gift | $ 61,000 |
| Gift tax paid | $ 21,000 |
| Multiplied by .693 ($61,000 ÷ $88,000) | .693 |
| Gift tax due to net increase in value | $ 14,553 |
Plus: Adjusted basis of property to
your mother
| 40,000 |
| Your basis in the property | $ 54,553 |
If you get property in a transfer that is partly a sale and partly
a gift, your basis is the larger of the amount you paid for the property or the
transferor's adjusted basis in the property at the time of the transfer. Add to
that amount the amount of any gift tax paid on the gift, as described in the
preceding discussion. For figuring loss, your basis is limited to the property's
fair market value at the time of the transfer.
taxmap/pubs/p550-021.htm#en_us_publink100010378For information on gift tax, see Publication 950, Introduction
to Estate and Gift Taxes. For information on figuring the amount of gift tax to
add to your basis, see
Property Received as a Gift in Publication 551, Basis of Assets.
taxmap/pubs/p550-021.htm#en_us_publink100010379taxmap/pubs/p550-021.htm#en_us_publink1000255356If you inherited property from a decedent who died before 2010,
your basis in that property generally is its fair market value (its appraised
value on Form 706, United States Estate (and Generation-Skipping Transfer) Tax
Return) on:
- The date of the decedent's death, or
- The later alternate valuation date if the estate qualifies
for, and elects to use, alternate valuation.
If no Form 706 was filed, use the appraised value on the date
of death for state inheritance or transmission taxes. For stocks and bonds, if
no Form 706 was filed and there are no state inheritance or transmission taxes,
see the Form 706 instructions for figuring the fair market value of the stocks
and bonds on the date of the decedent's death.
Your basis in certain appreciated property that you inherited
is the decedent's adjusted basis in the property immediately before death rather
than its fair market value. This applies to appreciated property that you or
your spouse gave the decedent as a gift during the 1-year period ending on the
date of death. Appreciated property is any property whose fair market value on
the day you gave it to the decedent was more than its adjusted basis.
taxmap/pubs/p550-021.htm#en_us_publink100010381See Publication 551, Basis of Assets, for more information on
the basis of inherited property, including community property, property held by
a surviving tenant in a joint tenancy or tenancy by the entirety, a qualified
joint interest, and a farm or closely held business.
taxmap/pubs/p550-021.htm#en_us_publink1000255357If you inherited property from a decedent who died after 2009,
see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying
in 2010, to figure your basis.
taxmap/pubs/p550-021.htm#en_us_publink100010382Before you can figure any gain or loss on a sale, exchange, or
other disposition of property or figure allowable depreciation, depletion, or
amortization, you usually must make certain adjustments (increases and
decreases) to the basis of the property. The result of these adjustments to the
basis is the adjusted basis.
Adjustments to the basis of stocks and bonds are explained in
the following discussion. For information about other adjustments to basis, see
Publication 551.
taxmap/pubs/p550-021.htm#en_us_publink100010383The basis of stocks or bonds you own generally is the purchase
price plus the costs of purchase, such as commissions and recording or transfer
fees. If you acquired stock or bonds other than by purchase, your basis is
usually determined by fair market value or the previous owner's adjusted basis
as discussed earlier under
Basis Other Than Cost.
The basis of stock must be adjusted for certain events that occur
after purchase. For example, if you receive more stock from nontaxable stock
dividends or stock splits, you must reduce the basis of your original stock. You
must also reduce your basis when you receive nondividend distributions
(discussed in chapter 1). These distributions, up to the amount of your basis,
are a nontaxable return of capital.
 | The IRS partners with companies that offer Schedule D software
that can import trades from many brokerage firms and accounting software to help
you keep track of your adjusted basis in securities. To find out more, go to
http://www.irs.gov/efile/topic/index.html. |
taxmap/pubs/p550-021.htm#en_us_publink100010385If you can adequately identify the shares of stock or the bonds
you sold, their basis is the cost or other basis of the particular shares of
stock or bonds.
taxmap/pubs/p550-021.htm#en_us_publink100010386You will make an adequate identification if you show that certificates
representing shares of stock from a lot that you bought on a certain date or for
a certain price were delivered to your broker or other agent.
taxmap/pubs/p550-021.htm#en_us_publink100010387If you have left the stock certificates with your broker or other
agent, you will make an adequate identification if you:
- Tell your broker or other agent the particular stock to be
sold or transferred at the time of the sale or transfer, and
- Receive a written confirmation of this from your broker or
other agent within a reasonable time.
Stock identified this way is the stock sold or transferred even
if stock certificates from a different lot are delivered to the broker or other
agent.
If you bought stock in different lots at different times and
you hold a single stock certificate for this stock, you will make an adequate
identification if you:
- Tell your broker or other agent the particular stock to be
sold or transferred when you deliver the certificate to your broker or other
agent, and
- Receive a written confirmation of this from your broker or
other agent within a reasonable time.
If you sell part of the stock represented by a single certificate
directly to the buyer instead of through a broker, you will make an adequate
identification if you keep a written record of the particular stock that you
intend to sell.
taxmap/pubs/p550-021.htm#en_us_publink100010389These methods of identification also apply to bonds sold or transferred.
taxmap/pubs/p550-021.htm#en_us_publink100010390If you buy and sell securities at various times in varying quantities
and you cannot adequately identify the shares you sell, the basis of the
securities you sell is the basis of the securities you acquired first. Except
for certain mutual fund shares, discussed later, you cannot use the average
price per share to figure gain or loss on the sale of the shares.
taxmap/pubs/p550-021.htm#en_us_publink100010391You bought 100 shares of stock of XYZ Corporation in 1995 for
$10 a share. In January 1996 you bought another 200 shares for $11 a share. In
July 1996 you gave your son 50 shares. In December 1998 you bought 100 shares
for $9 a share. In April 2010 you sold 130 shares. You cannot identify the
shares you disposed of, so you must use the stock you acquired first to figure
the basis. The shares of stock you gave your son had a basis of $500 (50 ×
$10). You figure the basis of the 130 shares of stock you sold in 2010 as
follows:
| 50 shares (50 × $10) balance of stock bought in 1995 | $ 500 |
| 80 shares (80 × $11) stock bought in January 1996 | 880 |
| Total basis of stock sold in 2010 | $1,380 |
The basis of shares in a mutual fund (or other regulated investment company) or
a real estate investment trust (REIT) is generally figured in the same way as
the basis of other stock and usually includes any commissions or load charges
paid for the purchase.
taxmap/pubs/p550-021.htm#en_us_publink1000250003You bought 100 shares of Fund A for $10 a share. You paid a $50
commission to the broker for the purchase. Your cost basis for each share is
$10.50 ($1,050 ÷ 100).
taxmap/pubs/p550-021.htm#en_us_publink100010393The fees and charges you pay to acquire or redeem shares of a
mutual fund are not deductible. You can usually add acquisition fees and charges
to your cost of the shares and thereby increase your basis. A fee paid to redeem
the shares is usually a reduction in the redemption price (sales price).
You cannot add your entire acquisition fee or load charge to
the cost of the mutual fund shares acquired if all of the following conditions
apply.
- You get a reinvestment right because of the purchase of the
shares or the payment of the fee or charge.
- You dispose of the shares within 90 days of the purchase date.
- You acquire new shares in the same mutual fund or another
mutual fund, for which the fee or charge is reduced or waived because of the
reinvestment right you got when you acquired the original shares.
The amount of the original fee or charge in excess of the reduction
in (3) is added to the cost of the original shares. The rest of the original fee
or charge is added to the cost basis of the new shares (unless all three
conditions above also apply to the purchase of the new shares).
taxmap/pubs/p550-021.htm#en_us_publink100010394You can choose to use the average basis of mutual fund shares
if you acquired the shares at various times and prices and left them on deposit
in an account kept by a custodian or agent. The methods you can use to figure
average basis are explained later.
taxmap/pubs/p550-021.htm#en_us_publink100010395If you had to include in your income any undistributed capital
gains of the mutual fund or REIT, increase your basis in the stock by the
difference between the amount you included and the amount of tax paid for you by
the fund or REIT. See
Undistributed capital gains of mutual funds and REITs under
Capital Gain Distributions in chapter 1.
This is the right to acquire mutual fund shares in the same or
another mutual fund without paying a fee or load charge, or by paying a reduced
fee or load charge.
The original cost basis of mutual fund shares you acquire by
reinvesting your distributions is the amount of the distributions used to
purchase each full or fractional share. This rule applies even if the
distribution is an exempt-interest dividend that you do not report as income.
|
Table 4-1.
This is a worksheet you can use to keep track of the adjusted
basis of your mutual fund shares. Enter the cost per share when you acquire new
shares and any adjustments to their basis when the adjustment occurs. This
worksheet will help you figure the adjusted basis when you sell or redeem
shares. |
taxmap/pubs/p550-021.htm#en_us_publink1000250000
Table 4-1. Mutual Fund Record
| Mutual Fund | Acquired1 | Adjustment to Basis Per Share | Adjusted2 Basis Per Share
| Sold or redeemed |
| Date | Number of Shares | Cost Per Share | Date | Number of Shares |
| | | | | | | | | | | | |
| | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| 1 Include share received from reinvestment of distributions.
|
| 2 Cost plus or minus adjustments.
|
taxmap/pubs/p550-021.htm#en_us_publink100010396If you participate in an automatic investment service, your basis
for each share of stock, including fractional shares, bought by the bank or
other agent is the purchase price plus a share of the broker's commission.
taxmap/pubs/p550-021.htm#en_us_publink100010397If you participate in a dividend reinvestment plan and receive
stock from the corporation at a discount, your basis is the full fair market
value of the stock on the dividend payment date. You must include the amount of
the discount in your income.
taxmap/pubs/p550-021.htm#en_us_publink100010398If, before 1986, you excluded from income the value of stock
you had received under a qualified public utility reinvestment plan, your basis
in that stock is zero.
taxmap/pubs/p550-021.htm#en_us_publink100010399Stock dividends are distributions made by a corporation of its
own stock. Generally, stock dividends are not taxable to you. However, see
Distributions of Stock and Stock Rights under
Dividends and Other Distributions
in chapter 1 for some exceptions. If the stock dividends are not taxable, you
must divide your basis for the old stock between the old and new stock.
If the new stock you received as a nontaxable dividend is identical
to the old stock on which the dividend was declared, divide the adjusted basis
of the old stock by the number of shares of old and new stock. The result is
your basis for each share of stock.
taxmap/pubs/p550-021.htm#en_us_publink100010401You owned one share of common stock that you bought for $45.
The corporation distributed two new shares of common stock for each share held.
You then had three shares of common stock. Your basis in each share is $15 ($45
÷ 3).
taxmap/pubs/p550-021.htm#en_us_publink100010402You owned two shares of common stock. You bought one for $30
and the other for $45. The corporation distributed two new shares of common
stock for each share held. You had six shares after the distribution—three
with a basis of $10 each ($30 ÷ 3) and three with a basis of $15 each ($45
÷ 3).
taxmap/pubs/p550-021.htm#en_us_publink100010403If the new stock you received as a nontaxable dividend is not
identical to the old stock on which it was declared, the basis of the new stock
is calculated differently. Divide the adjusted basis of the old stock between
the old and the new stock in the ratio of the fair market value of each lot of
stock to the total fair market value of both lots on the date of distribution of
the new stock.
taxmap/pubs/p550-021.htm#en_us_publink100010404You bought a share of common stock for $100. Later, the corporation
distributed a share of preferred stock for each share of common stock held. At
the date of distribution, your common stock had a fair market value of $150 and
the preferred stock had a fair market value of $50. You figure the basis of the
old and new stock by dividing your $100 basis between them. The basis of your
common stock is $75 ($150/$200 × $100), and the basis of the new preferred
stock is $25 ($50/$200 × $100).
taxmap/pubs/p550-021.htm#en_us_publink100010405Figure the basis of stock dividends received on stock you bought
at various times and at different prices by allocating to each lot of stock the
share of the stock dividends due to it.
taxmap/pubs/p550-021.htm#en_us_publink100010406If your stock dividend is taxable when you receive it, the basis
of your new stock is its fair market value on the date of distribution. The
basis of your old stock does not change.
taxmap/pubs/p550-021.htm#en_us_publink100010407Figure the basis of stock splits in the same way as stock dividends
if identical stock is distributed on the stock held.
taxmap/pubs/p550-021.htm#en_us_publink100010408A stock right is a right to acquire a corporation's stock. It
may be exercised, it may be sold if it has a market value, or it may expire.
Stock rights are rarely taxable when you receive them. See
Distributions of Stock and Stock Rights under
Dividends and Other Distributions in chapter 1.
If you receive stock rights that are taxable, the basis of the
rights is their fair market value at the time of distribution. The basis of the
old stock does not change.
taxmap/pubs/p550-021.htm#en_us_publink100010410If you receive nontaxable stock rights and allow them to expire,
they have no basis.
If you exercise or sell the nontaxable stock rights and if, at
the time of distribution, the stock rights had a fair market value of 15% or
more of the fair market value of the old stock, you must divide the adjusted
basis of the old stock between the old stock and the stock rights. Use a ratio
of the fair market value of each to the total fair market value of both at the
time of distribution.
If the fair market value of the stock rights was less than 15%,
their basis is zero. However, you can choose to divide the basis of the old
stock between the old stock and the stock rights. To make the choice, attach a
statement to your return for the year in which you received the rights, stating
that you choose to divide the basis of the stock.
taxmap/pubs/p550-021.htm#en_us_publink100010411If you exercise the stock rights, the basis of the new stock
is its cost plus the basis of the stock rights exercised.
taxmap/pubs/p550-021.htm#en_us_publink100010412You own 100 shares of ABC Company stock, which cost you $22 per
share. The ABC Company gave you 10 nontaxable stock rights that would allow you
to buy 10 more shares at $26 per share. At the time the stock rights were
distributed, the stock had a market value of $30, not including the stock
rights. Each stock right had a market value of $3. The market value of the stock
rights was less than 15% of the market value of the stock, but you chose to
divide the basis of your stock between the stock and the rights. You figure the
basis of the rights and the basis of the old stock as follows:
| 100 shares × $22 = $2,200, basis of old stock | |
| 100 shares × $30 = $3,000, market value of old stock | |
| 10 rights × $3 = $30, market value of rights | |
| ($3,000 ÷ $3,030) × $2,200 = $2,178.22, new basis
of old stock | |
| ($30 ÷ $3,030) × $2,200 = $21.78, basis of rights | |
If you sell the rights, the basis for figuring gain or loss is
$2.18 ($21.78 ÷ 10) per right. If you exercise the rights, the basis of the
stock you acquire is the price you pay ($26) plus the basis of the right
exercised ($2.18), or $28.18 per share. The remaining basis of the old stock is
$21.78 per share.
taxmap/pubs/p550-021.htm#en_us_publink100010413In general, if you receive investment property as a distribution
in partial or complete liquidation of a corporation and if you recognize gain or
loss when you acquire the property, your basis in the property is its fair
market value at the time of the distribution.
taxmap/pubs/p550-021.htm#en_us_publink100010414You must increase your basis in stock of an S corporation by
your
pro rata share of the following items.
- All income items of the S corporation, including tax-exempt
income, that are separately stated and passed through to you as a shareholder.
- The nonseparately stated income of the S corporation.
- The amount of the deduction for depletion (other than oil
and gas depletion) that is more than the basis of the property being depleted.
You must decrease your basis in stock of an S corporation by
your
pro rata share of the following items.
- Distributions by the S corporation that were not included
in your income.
- All loss and deduction items of the S corporation that are
separately stated and passed through to you.
- Any nonseparately stated loss of the S corporation.
- Any expense of the S corporation that is not deductible in
figuring its taxable income and not properly chargeable to a capital account.
- The amount of your deduction for depletion of oil and gas
wells to the extent the deduction is not more than your share of the adjusted
basis of the wells.
However, your basis in the stock cannot be reduced below zero.
If you bought this stock or interest as replacement property
for publicly traded securities you sold at a gain, you must reduce the basis of
the stock or interest by the amount of any postponed gain on that sale. See
Rollover of Gain From Publicly Traded Securities, later.
If you bought this stock as replacement property for other qualified
small business stock you sold at a gain, you must reduce the basis of this
replacement stock by the amount of any postponed gain on the earlier sale. See
Gains on Qualified Small Business Stock, later.
If you cannot deduct payments you make to a lender in lieu of
dividends on stock used in a short sale, the amount you pay to the lender is a
capital expense, and you must add it to the basis of the stock used to close the
short sale.
taxmap/pubs/p550-021.htm#en_us_publink100010418If you buy a bond at a premium, the premium is treated as part
of your basis in the bond. If you choose to amortize the premium paid on a
taxable bond, you must reduce the basis of the bond by the amortized part of the
premium each year over the life of the bond.
Although you cannot deduct the premium on a tax-exempt bond,
you must amortize it to determine your adjusted basis in the bond. You must
reduce the basis of the bond by the premium you amortized for the period you
held the bond.
taxmap/pubs/p550-021.htm#en_us_publink100010419If you include market discount on a bond in income currently,
increase the basis of your bond by the amount of market discount you include in
your income. See
Market Discount Bonds in chapter 1 for more information.
A bond purchased at par value (face amount) has no premium or
discount. When you sell or otherwise dispose of the bond, you figure the gain or
loss by comparing the bond proceeds to the purchase price of the bond.
taxmap/pubs/p550-021.htm#en_us_publink100010421You purchased a bond several years ago for its par value of $10,000.
You sold the bond this year for $10,100. You have a gain of $100. However, if
you had sold the bond for $9,900, you would have a loss of $100.
taxmap/pubs/p550-021.htm#en_us_publink100010422If you include acquisition discount on a short-term obligation
in your income currently, increase the basis of the obligation by the amount of
acquisition discount you include in your income. See
Discount on Short-Term Obligations in chapter 1 for more information.
OID on tax-exempt obligations is generally not taxable. However,
when you dispose of a tax-exempt obligation issued after September 3, 1982, that
you acquired after March 1, 1984, you must accrue OID on the obligation to
determine its adjusted basis. The accrued OID is added to the basis of the
obligation to determine your gain or loss.
For information on determining OID on a long-term obligation,
see
Debt Instruments Issued After July 1, 1982, and Before 1985 or
Debt Instruments Issued After 1984, whichever applies, in Publication 1212 under
Figuring OID on Long-Term Debt Instruments.
If the tax-exempt obligation has a maturity of 1 year or less,
accrue OID under the rules for acquisition discount on short-term obligations.
See
Discount on Short-Term Obligations in chapter 1.
If you acquired a stripped tax-exempt bond or coupon after October
22, 1986, you must accrue OID on it to determine its adjusted basis when you
dispose of it. For stripped tax-exempt bonds or coupons acquired after June 10,
1987, part of this OID may be taxable. You accrue the OID on these obligations
in the manner described in chapter 1 under
Stripped Bonds and Coupons.
Increase your basis in the stripped tax-exempt bond or coupon
by the taxable and nontaxable accrued OID. Also increase your basis by the
interest that accrued (but was not paid and was not previously reflected in your
basis) before the date you sold the bond or coupon. In addition, for bonds
acquired after June 10, 1987, add to your basis any accrued market discount not
previously reflected in basis.
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