Should I sell my 30 day T-Bill?

[Thedoc2049]

[Moved into a new thread from: selling T bills on vanguard --admin LadyGeek]

I have a 30 day t bill that matures 4/20/23 and was for 800k. Purchased for ~797k. So will yield about 3K interest which is state tax free but federal tax, correct?

This particular t bill in my vanguard account says the gain is +6,296.54. I assume this is around the amount could sell for gain on secondary market.

Would it make sense to sell this bill prior to maturity if potential gain is 6K? I assume this gain would get taxes federal and state whereas if held to maturity only federal tax.

Thanks for any advice.

[student]

I have a 30 day t bill that matures 4/20/23 and was for 800k. Purchased for ~797k. So will yield about 3K interest which is state tax free but federal tax, correct?

My understanding is that if you hold them to maturity. See viewtopic.php?t=390405

This particular t bill in my vanguard account says the gain is +6,296.54. I assume this is around the amount could sell for gain on secondary market.

Yes

Would it make sense to sell this bill prior to maturity if potential gain is 6K? I assume this gain would get taxes federal and state whereas if held to maturity only federal tax.

Thanks for any advice.

I can't say whether it makes sense to sell or not. But for the tax situation, my understanding is the same as yours.

[MrJedi]

The 6k gain part does not seem right. I don't see how that's possible if you bought 800k in t bill at 797k.

[erp]

There's no such thing as a 30 day tbill and even if there was, 4/20/23 is more than 30 days away so you couldn't own it yet.

It would kind of make sense if you mean you bought this ~2 months ago for 791k, it has earned 6k, and you could sell it for 797k right now. If you hold to maturity, you will continue to earn 4+% interest for another month.

[Thedoc2049]

I think it was a 3 mo T-bill as you say.... but they do auction 1 mo T-Bills every week and have bought those frequently

The brokerage transaction from Vanguard came through as the following:
"The following order executed on 01/17/2023 at 12:18 PM, Eastern time:

Account ending in: 0443
Transaction type: Buy
Security: U S TREASURY BILL 0% 04/20/23 04/21/22
Product type: US Treasury Bill
Face value: $800,000.00
Price:* $98.85"

Today it says value is 797,075.20.

790,778.66 was the value initially debited.
Interest payment if held to maturity would be $9,221.34.

So, it seems holding it to maturity would make the most sense. Otherwise, selling for ~6K profit today and having to pay state tax on top of federal seems unfavorable, unless you needed access to the funds ASAP.

[Geologist]

Actually, there aren't any 3 month T-Bills either. This is a 13-week Treasury bill. (And there is no 30 day or 1 month T-bill: they are 4 weeks.)

[Thedoc2049]

Yes you are right about the week naming versus months/days

[mjg]

I think it was a 3 mo T-bill as you say.... but they do auction 1 mo T-Bills every week and have bought those frequently

The brokerage transaction from Vanguard came through as the following:
"The following order executed on 01/17/2023 at 12:18 PM, Eastern time:

Account ending in: 0443
Transaction type: Buy
Security: U S TREASURY BILL 0% 04/20/23 04/21/22
Product type: US Treasury Bill
Face value: $800,000.00
Price:* $98.85"

Today it says value is 797,075.20.

790,778.66 was the value initially debited.
Interest payment if held to maturity would be $9,221.34.

So, it seems holding it to maturity would make the most sense. Otherwise, selling for ~6K profit today and having to pay state tax on top of federal seems unfavorable, unless you needed access to the funds ASAP.

It's a 0% interest T-Bill that was originally sold at a discount. You bought it at 98.85% of the $800,000 face value. If you sell it today at the "value" (whether that is still $797,075.20 or something else at the point you were to sell), then you are only going to get the "value" (minus any commission on the sale) and no accrued interest (a 0% interest accrues no interest). You actually bought it at $790,800 (the price you paid times the face value), so the gain it shows on a potential sale is the amount over the $790,800 you paid. And it's not a 30 day T-Bill. It was a one year T-Bill (the dates are in the "Security" description, with roughly 30 days remaining.

It's your choice is to take the proceeds of a sale now or wait until it matures and you receive the $800,000 face value.

[erp]

It's a good question though if selling now turns the 6k of interest into capital gains and thus state income taxable. I haven't tried this before so I don't know how it gets reported by the broker.

[student]

It's a good question though if selling now turns the 6k of interest into capital gains and thus state income taxable. I haven't tried this before so I don't know how it gets reported by the broker.

I think 1099B.

[peteyboy]

I think it was a 3 mo T-bill as you say.... but they do auction 1 mo T-Bills every week and have bought those frequently

The brokerage transaction from Vanguard came through as the following:
"The following order executed on 01/17/2023 at 12:18 PM, Eastern time:

Account ending in: 0443
Transaction type: Buy
Security: U S TREASURY BILL 0% 04/20/23 04/21/22
Product type: US Treasury Bill
Face value: $800,000.00
Price:* $98.85"

Today it says value is 797,075.20.

790,778.66 was the value initially debited.
Interest payment if held to maturity would be $9,221.34.

So, it seems holding it to maturity would make the most sense. Otherwise, selling for ~6K profit today and having to pay state tax on top of federal seems unfavorable, unless you needed access to the funds ASAP.

Looks like what you bought was a 52 week T-bill about 3-mo prior to maturity. And when you bought it for $790,788, interest rates for 13-week T-bills at that time were about 4.65% I’m guessing. I’m basing that on the fact that ($9221/$790,788)4 = 0.0466 or 4.66%.

EDIT ADD: And today’s value of $797,075 means that the current 4-week T-bill rate is about 4.4% (+/-). I get that from [(800,000 - 797,075)/797,075]12 = 0.044.

I’d hold it until maturity to avoid the state tax as you point out.

[rockstar]

Something is off. I’ve never seen t bills sell over par on the secondary market.

[ponzu]

It's a good question though if selling now turns the 6k of interest into capital gains and thus state income taxable. I haven't tried this before so I don't know how it gets reported by the broker.

I think 1099B.

I have, at Vanguard, and 1099-B is correct. More specifically, a 1099-B stating, "Short term transactions for noncovered tax lots" and "Report on Form 8949, Part I with Box B checked. Basis is not provided to the IRS."

So, I had to fill out Form 8949 and Schedule D. I also paid state income tax on it.

The tax situation is definitely simpler if you hold until maturity. You will get a 1099-INT with the interest reported on line 3 "Interest on US Savings Bonds & Treasury obligations." This just involves Schedule B. Your state taxes likely require you to report it as nontaxable interest somewhere, though.

[Lyrrad]

It's a good question though if selling now turns the 6k of interest into capital gains and thus state income taxable. I haven't tried this before so I don't know how it gets reported by the broker.

I assume that there's a straight line interpolation of the value between the purchase and maturity date of the bill and if sold early there would be (state-taxable) capital gains/losses on the difference between the interpolation and the sale price. If that's correct, I don't know if the brokerage figures that out for you, or if you have to do it yourself.

I think it's covered in the Taxation of Treasury bills, notes and bonds topic somewhere.

I've never sold a bill in a taxable account before maturity, so I don't have to deal with this issue.

[w5000]

If you bought a 13 week T-Bill at the auction on January 19 (and yes, the CUSIP is usually (always?) the same as that of a longer duration T-Bill so it's kind of like a reopening), then it looks like the rate at the auction was 4.693%. (That's the investment rate according to the auction press release.)

With a T-Bill, the interest income accrues linearly during the time you hold the T-Bill. You only have a capital gain or loss to the extent that interest rates change (or you move along the yield curve). Given that interest rates have gone down recently (the "1 month" T-Bill is currently under 4%) , it makes sense that this T-Bill has increased in value, and so you would have some capital gain if you sold it. Taxation aside, my understanding is that it's a wash to sell a T-Bill before maturity and buy another T-Bill. However, given that you could have some of the income taxed at a lower capital gains rate instead of interest at your marginal ordinary income rate, seems like it would be advantageous to sell it. You can calculate how much "interest" you have "accrued" so far, then the rest would be capital gain. I assume the capital gain would be subject to state income tax though?

[aristotelian]

It's a good question though if selling now turns the 6k of interest into capital gains and thus state income taxable. I haven't tried this before so I don't know how it gets reported by the broker.

This is they key question and a major reason why I do not buy brokered bonds in taxable accounts.

[shess]

With the next 52-week auction incoming, I was reviewing stats before establishing the next rung of the ladder, and I notice that Ally has gotten back to some decent rates on their no-penalty CDs. At 4.75%, their no-penalty rates are about level with the 4.3% that is listed for 52-week T-bills, after you back out my state taxes. For me, "about level" means I'll stick with T-bills, given the past bit of banking news .

Anyhow, it did cause me to look at a few non-ladder T-bills I had. AFAICT, if I sell the bills in the secondary market, and then reinvest the proceeds into the above-mentioned Ally no-penalty CD, then on the original maturity date of the T-bills, I will be in almost exactly the same position as if I simply held the T-bills as is. To me, that argues not to bother, because I won't be paid back for doing the transactions, even before considering possible issues like not receiving any yield at all for a few days while transfering dollars around, or the different state-tax treatment.

I would perhaps reconsider if either the gains were notable (say $100 or more to maturity), or the ability to lock a higher yield in for a longer period looks tempting. Given the recent banking news, I'm inclined to think that I'm likely to do best staying pat.

[crefwatch]

Who would be buying it? A bond market partner selected by Vanguard? In that case, their Bid price will reflect a profit above any price fluctuation for the bond-market buyer. I don't know if Vanguard charges a commission for T-Bills, but they do for most corporate bonds. After all, you are not an institutional dealer; You're a day trader. Wait for it to be redeemed at no net cost to you.