I have a client that received a 1099-B for the proceeds of California Municipal Bonds that are tax-free. Does this amount have to be reported on Sch D with the purchase price and selling price the same so as to show no taxable gain? Or should I just not list it anywhere? Maybe put it on the 1040 on line 8a as non-taxable income? Any thoughts would be appreciated. The client lives in California and the total amount is around $33,000.
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Bill -
Tax Exempt
I believe you adjust the basis in the municipal bonds by any reinvestments and reduce the basis by any return of capital. That will provide you with your adjusted basis, net against the sale price and you have a capital gain or loss reportable on schedule D. You still have to report gain on the sale of tax exempt holdings.
Could be slightly different calculation depending on bonds purchased at a discount or bonds purchased at a premium.
S
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