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09-23-2018, 02:07 PM
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#1
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 2,223
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Treasury "Strips"
Are Treasury securities striped of the periodic income still available on the secondary market and if so, do you have to pay yearly income tax on the "accretion" if that is the correct term . Or is it lump sum income when it pays out at maturity as a gain over the discounted price paid at purchase ?
Got a bunch CD maturing , thinking of treasury instead of CD's. Live in a state with high state income tax.
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" A person is smart, but People are dumb, dangerous, panicky animals, and you know it " Agent "K", Men in Black
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09-23-2018, 04:34 PM
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#2
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Dryer sheet wannabe
Join Date: Sep 2018
Posts: 24
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Quote:
Originally Posted by Lakewood90712
Are Treasury securities striped of the periodic income still available on the secondary market and if so, do you have to pay yearly income tax on the "accretion" if that is the correct term . Or is it lump sum income when it pays out at maturity as a gain over the discounted price paid at purchase ?
Got a bunch CD maturing , thinking of treasury instead of CD's. Live in a state with high state income tax.
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I have not had to do it but I don't think you have any gain until the bill matures. When a note interest (strip) is paid you pay that gain the year it is paid out.
I am interested also, but can't determine if I am reading something wrong.
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dryer sheets should have a selector size
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09-23-2018, 04:36 PM
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#3
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Dryer sheet wannabe
Join Date: Sep 2018
Posts: 24
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__________________
dryer sheets should have a selector size
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09-23-2018, 04:53 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2004
Location: Laurel, MD
Posts: 8,304
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I was looking at these on the Fido site recently. The yield did not seem attractive and unfortunately it looks like you do owe tax on the phantom interest. There was one bond I saw with a zero coupon so I might look into that.
https://finance.zacks.com/tax-treasury-strips-7266.html
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...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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09-23-2018, 06:25 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Sep 2012
Posts: 1,568
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You must accrete, report and pay taxes on the "phantom" interest each year. How much? It's complicated.
You can pretty simply compute your accretion schedule, based on your yield when you buy. However, the STRP has its own accretion schedule based on its original yield when issued, and that is what you'll receive from the issuer for tax reporting. You have to reconcile the difference between what you earned and what is reported for taxes, be ready to explain that to the IRS, and adjust your cost basis accordingly.
My advice, don't buy a STRP in a taxable account.
https://www.irs.gov/publications/p550
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You know that suit they burying you in? Thar ain’t no pockets in that suit, boy.
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09-24-2018, 01:54 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 2,223
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Thanks for the links. Info is deep in the weeds, but can be understood by mere mortals with a little patience.
Advantages of Treasury vs CD's in taxable accounts
TR - No state income tax
TR- Can be sold at a profit if interest rates drop
CD -Can be broken at known penalty ( does not apply to brokered CD's)
Brokered CD's can be resold, but you are at the mercy of the market.
Disadvantages of Treasury vs CD'd
TR - If sold early and rates have risen, at mercy of the market on loss.
CD - Subject to state income tax
CD - If rates go up , must pay early withdrawal to benefit from rising rates.
Have I missed anything important ?
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