<p>I just recvd a 1099-b, proceeds from broker and barter exchange transactions</p>
<p>for a state of Illinois college saving bond that was taken out in 1994 and used/redeemed last yr for college.</p>
<p>does this mean this needs to be reported as income? I thought the idea behind these college saving bonds was that the interest was tax exempt? Please clarify, anyone.</p>
<p>I've been trying to figure out something similar for a Washington State college savings bond bought 1989, redeemed 2008. The best I can figure out is that my son's bond is OID (original issue discount) zero coupon bond meaning that we bought it at less than we redeemed it. OID is the "interest". Some bonds have taxable OID where the holders report and pay taxes each year (even though they don't cash in until the bond matures or they sell it early). OID from state/municipal bonds is "tax-exempt", at least from federal tax. I think for tax purposes you add each year's OID to the bond basis until you sell early or it matures and you cash it in. My son held his until it matured, so I think we just put on Schedule D the sell price, the basis (what we paid for it) plus all the OID for all the years added in, and the gain/loss will be 0. Then he reports one year of OID as tax-exempt interest on the 1040. I think if you are not required to file, you don't have to do anything (don't know about state income tax since WA does not have it). On FAFSA/Profile I was going to report the 2008 OID amount as tax-exempt income. I'm not a tax expert...I'm just 24 hours ahead of you reading the IRS instructions as best I can...</p>
<p>Income is exempt from Federal Income tax. I believe it is also exempt from Illinois Income Tax. It is reportable income (federal tax form asks for the amount of tax-exempt income for informational purposes only). The IL form may ask for it to be reported as Income, and then give you an adjustment under Exempt Income (like interest on US Treasury Obligations). You will have to read your tax form on how to properly report and exclude the income.</p>
<p>Another question regarding such distributions would be how do we show such income when filing the FAFSA? Is there a particular place to report it?</p>
<p>I think it would go under tax-exempt interest on FAFSA if it gets reported as tax-exempt interest to the IRS. But I can't find anything that says whether or not tax-exempt OID, where no 1099-OID is issued, gets reported to IRS. I've looked at IRS Pub 550 and 1212. Last year, when I was in a rush, I reported all 18 years worth of "tax-exempt interest" (didn't know about OID) we received when the bond matured on FAFSA. That was probably not right either.</p>
<p>lunar, it probably made you look unnecessarily and incorrectly rich - DoH! I hate that when that happens.</p>
<p>I am still tryoing to figure out this. I tried another tax pkg(taxcut) aftwer trying taxact and it is still not clear how to report this income. taxcut added 2500 to my income. taxact did not - but that was probably because I did not report it. :)</p>
<p>I got to hit the original pubs like opera suggested. is there a free q and a taxsite around -anyone?</p>
<p>Found this in Pub. 1212, page 8:</p>
<p>
[quote]
Tax-exempt bond. If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond.
[/quote]
</p>
<p>So that's how you get the adjusted basis for Schedule D reporting of the 1099-B.</p>
<p>Still don't know what to do about reporting any tax-exempt income for the year 2008, but I'm going for a guess now and moving on. Please post if you find out the correct answer.</p>
<p>
[quote]
But I can't find anything that says whether or not tax-exempt OID, where no 1099-OID is issued, gets reported to IRS
[/quote]
</p>
<p>Keep track of it yourself. Report it with other tax-exempt income. For IL, there may be special rules. I don't know whether IL College Savings Bonds are exempt regardless, or only if used for college. If the latter, then they can't tax you on the OID since they don't know if it will be used for college at maturity. Thus, they must have special rules for reporting the OID.</p>
<p>For Illinois...
College</a> Savings Bonds</p>
<p>
[quote]
I just recvd a 1099-b, proceeds from broker and barter exchange transactions
[/quote]
</p>
<p>That is a Schedule D transaction. You report the proceeds received, and you offset that by your "basis". Just like when you sell a stock. If you bought the bond at original issue, or at a yield lower than the original issue yield, then your "basis" will be the amount of proceeds received (bond amortizes to the right price, so don't worry about doing the calculation).</p>
<p>If you bought the bond on the secondary market at a yield higher than the higher of: 1) original issue yield, or 2) Coupon yield, then that difference (purchase yield vs original issue/coupon yield of the bond) is taxable as a capital gain at maturity (unless you opted to report the amortization of the market discount each year as interest). If you can't do the calculation, then you will need to higher someone who can.</p>
<p>Also, the difference between what you paid and your "adjusted basis" is tax-exempt income, and is reported like all other tax-exempt income.</p>
<p>Did you apply for the Bonus Incentive Grant? If you went to college in IL, you are entitled to a bonus payment, but you have to apply for it. I think that is also exempt (if not as tax-exempt income, it sould be exempt like a scholarship), but check the program description.</p>
<p>All the numbers should flow from your federal 1040 to your IL return. The tax-exempt income should get added to your AGI for IL purposes, and then the parts exempt from IL taxes should be excluded. But, I don't have an IL return, so I am just guessing.</p>
<p>OperaDad,</p>
<p>Thanks so much for the information. WA does not have the bonus grant, but maybe roderick can pick it up for IL.</p>
<p>My bond matured on Aug. 1 2008. I understand that the basis I use for Sch. D is what I paid at original issue+OID for all the years (same amount as what I received...net gain=0). The tax exempt interest that I report is just for the period Jan. 1, 2008-August 1, 2008, right? I think I can get close to the right number using Pub 1212. Any idea why the states don't sent 1099-OID. I had no idea what OID was or that son was receiving "tax exempt interest" all those years those bonds were gathering dust in the safe deposit box.</p>
<p>my daughter, for whom this savings bond was redeemed (made into cash), is going to school in Wisconsin, so I guess we can not avail ourselves of that Bonus Incentive Grant, right?</p>
<p>
[quote]
Any idea why the states don't sent 1099-OID.
[/quote]
</p>
<p>"No information reporting for tax-exempt OID under section 6049 will be required until such time as the IRS and Treasury provide future guidance. "</p>
<p>Instructions</a> for Forms 1099-INT and 1099-OID (2008)</p>
<p>Note: Be sure you understand the difference between OID "Original Issue Discount" and "market discount"</p>
<p>I think the following says what has been said above. It says to not report it, but it also says to report the interest on 'line 8b'</p>
<p>Tax</a> Law (Questions About Taxes): Form 1099-B, college savings bonds, redemption price</p>
<p>
[quote]
The fact it was a zero coupon bond and a tax exempt bond changes everything. As you probably know, your interest is received as a lump sum at redemption - the growth in the price of the bond. Therefore, any increase from your purchase price to your redemption price is interest. In this case, tax exempt. Therefore, you do not need to report the redemption on your taxes at all. Just leave off.</p>
<p>You will need to show on line 8b the amount of tax free interest for the year. This is just a "memo" type entry and does not afffect your tax.</p>
<p>Hope this helps.</p>
<p>John Stancil, CPA
[/quote]
</p>
<p>OperaDad,</p>
<p>The bond was bought in my son's name at issue and sold at maturity. I believe that I'd have to worry about "market discount" only if I bought the bond later or sold earlier on the market. So Sch. D is easy--basis with all OID added back=maturity value=0 gain. Tax exempt interest only for the part of 2008 that he held the bond. Report that on FAFSA/Profile. He doesn't even have to file (never has). All this work for a two digit federal tax refund from that part-time summer job!!</p>
<p>Roderick,</p>
<p>Remember, on line 8b it's "tax free interest for the year", not the interest across all the years.</p>
<p>hmm , I guess you are right. Here is the response I recvd from taxact on how to handle a zero coupon college svings bond for which I recvd a 1099-b after cashing it at maturity in 2008....</p>
<p>
[quote]
If you received a 1099-B that should not be taxable, you would still want to enter it in your return as the IRS will try and match the sales proceeds amount to their copy of the form.</p>
<p>If you do not want this to be taxable, enter the amount of the Sales Proceeds and then enter the same amount as the Purchase Price (basis). This reports the 1099-B but nets to zero the gain/loss on the return.
[/quote]
</p>
<p>btw, is the response from taxact the same as what operadad said earlier in this thread, at post#10...</p>
<p>
[quote]
You report the proceeds received, and you offset that by your "basis". Just like when you sell a stock. If you bought the bond at original issue, or at a yield lower than the original issue yield, then your "basis" will be the amount of proceeds received
[/quote]
</p>
<p>I think I bought the bond at original issue. I never have done any stocks or bonds in my life except for this one - thus the ignorance of terms and procedures on my part.</p>
<p>Roderick,</p>
<p>Are you clear about who is the bond owner in your situation? In mine, the owner was my son through UTMA. I was just the custodian. The Sch. D and line 8b tax-exempt income (for the few months in 2008 that he still held the bond) went on his return.</p>