Tax Q re: selling US Tres Zeros in Taxable Acc

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diy60
Posts: 274
Joined: Wed Sep 07, 2016 6:54 pm

Tax Q re: selling US Tres Zeros in Taxable Acc

Post by diy60 » Mon Aug 12, 2019 5:26 pm

I would like to adjust my allocation in my taxable account to be a little bit more tax efficient (move some bond AA to tax deferred).

I have some US treasuries Zeros with Nov and Dec '19 maturity dates with yield rates around 2.4% or so at maturity. Looking at them today if I sold now it looks like I would realize an XIRR of about 3%. Question on taxes: When I hold these Zeros to maturity the gains are reported at interest income and exempt from state tax. If I sell before maturity are the gains reported as short term gains vs interest income? More importantly, am I giving up the state tax exempt status of the gains by selling before the maturity date?

FactualFran
Posts: 865
Joined: Sat Feb 21, 2015 2:29 pm

Re: Tax Q re: selling US Tres Zeros in Taxable Acc

Post by FactualFran » Tue Aug 13, 2019 3:32 pm

Because there have been no replies after almost 24 hours, here is a non-expert opinion. The capital gain, whether long-term or short-term, would the difference between the sale proceeds and the adjusted price. The adjusted price is the price you paid plus the accrued discount between the buy and sell transactions. The accrued discount is taxed as ordinary income and is exempt from State income tax.

Gill
Posts: 5501
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Tax Q re: selling US Tres Zeros in Taxable Acc

Post by Gill » Tue Aug 13, 2019 4:07 pm

FactualFran is correct.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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