[RFJMA]

I purchase an Illinois College Savings Bond for my 20 year old son when he was born. IT is a zero-coupon bond from the State of Illinois that is federally and state tax exempt.

I received a 1099-B for it when I redeemed it in 2007. I have looked everywhere on the IRS site and the State of IL site, as well as searching in Turbo Tax, and on the internet, and I cannot find out how to go about reporting it on Schedule D to ensure that it is treated as tax-exempt.

Can anyone help?
Annette

[jcolsen]

I am looking for the answer to this very question as well. I would have thought that they would have sent us a 1099-INT showing the interest as "Tax Exempt Interest" and we would have been able to put the gain on line 8b of the 1040 form, making it tax exempt.

But since they sent us a 1099-B, it seems like we would have to have an entry on Schedule D. But then if you put down the cost basis as what you paid for it, you would have a gain and it would not be tax exempt!

Any tax experts, please help us.

Thanks in advance!

[RFJMA]

I called the IRS and received the following answer:
Put the redemption amount for both the sales price and the basis, thus showing no gain or loss on schedule D. This also ensures that the bond does not get taxed on your state return either.
RFJMA

[jcolsen]

RFJMA,

OK, that makes sense to put $5000 for the cost basis as well as the proceeds so that there is no capital gain. I will do the same.

My only remaining question is that since I have never entered the tax exempt interest over the 15 years since I bought the bond (and I assume that you did not do this either), should I enter the difference between the proceeds and the purchase price as tax exempt interest (i.e. add it on Line 8b of the 1040)? Did the IRS mention anything about that?

Any others with an opinion on this, please respond as well.

Thanks

[RFJMA]

No they didn't, and there was no 1099 INT issued. Since it also tax emept in the state of IL, I would assume not.
RFJMA