Mutual Fund, Tax Free??

[geekgirldany]

I have a customer that took money out of a Mutual Fund. It purchased a Tax Free Bond and this is what it shows on the statement. He received a 1099B showing what he received. If it is a tax free bond why did he receive the 1099B? Maybe I am thinking backwards... is it only the interest it earns is tax free?

[veritas]

It is only the

interest which is tax free. The sale of a mutual bond funds goes on schedule D. Hopefully they provided the basis.

[geekgirldany]

Thank you so much. Yes they sent a break down with the basis, sale, and gain.

[thomtax]

Yes they sent a break down with the basis, sale, and gain.

Lucky girl. :-)

[BOB W]

Lucky girl. :-)

Definately LUCKY. I hope that they included the total tax fee interest in basis for all the years in the fund.

[Jiggers]

Huh?

Definately LUCKY. I hope that they included the total tax fee interest in basis for all the years in the fund.

Please explain?

I don't think that the tax free interest is added to basis.

[taxxcpa]

Reinvested tax-free interest

Please explain?

I don't think that the tax free interest is added to basis.

If you buy 100 shares and reinvest tax-free interest and end up with 101 shares, you should add the reinvested interest to basis. If you had taken the interest and bought some other stock or bond, the fact that the money you invested was from tax-free interest would not make the new investment have a zero basis.

[Burke]

If you buy 100 shares and reinvest tax-free interest and end up with 101 shares, you should add the reinvested interest to basis. If you had taken the interest and bought some other stock or bond, the fact that the money you invested was from tax-free interest would not make the new investment have a zero basis.

Sort of like all the divs earned by a kid in a mutual fund that was never enough for him to have to file a return?