What happens when bond matures?

[MissMolly]

I have a bond purchased years ago. Here is what it says on Vanguard for the description:

XXXXX ELEC LT & PWR REV SER B AMBAC B/E DEF INT @14.694 6.95% 0% 01/01/20 12/06/91

It's obviously a utility company, name redacted. So I'm guessing this means it matures in January, right? So what happens then? Is it just automatically redeemed and instead of a bond I have cash in the account, or do I have to take some sort of action?

Thanks

 

[COcheesehead]

You’ll get the par value plus the last interest payment deposited into the brokerage where it’s held.

 

[GrayHare]

And early next year you might get a 1099 showing, say, $5000 "income" from sale of a bond. If you had paid the same amount ($5000) for that bond, you have no capital gain, but still must report the sale on your tax return along with the $5000 purchase price and $0 cap gain.

 

[MissMolly]

Cap gains? I think they said it was a tax exempt municipal bond. It's been a long, long time ago, but I'm pretty sure. Would that mean I don't have to pay any kind of taxes?

 

[COcheesehead]

Cap gains? I think they said it was a tax exempt municipal bond. It's been a long, long time ago, but I'm pretty sure. Would that mean I don't have to pay any kind of taxes?

Did you buy it at release or on the secondary market? Also it just occurred to me, is this a zero coupon or were you receiving interest payments regularly?

 

[MissMolly]

@COcheesehead - my computer won't let me quote, so I'll answer separately. I have no idea about at release/secondary market.

Yes, it was a zero coupon bond.

 

[GrayHare]

IIRC, muni bond cag gains are often tax-exempt within the state issued, but subject to federal income tax, as well as taxable if you are in a different state. If you prep your own income tax return you'll need to read up on the rules for your state.

 

[COcheesehead]

@COcheesehead - my computer won't let me quote, so I'll answer separately. I have no idea about at release/secondary market.

Yes, it was a zero coupon bond.

That’s little different animal. You buy it at a discount and then you get full par value at maturity. No interest payments.

 

[MissMolly]

I found this: https://www.rbcwm-usa.com/resources/file-703494.pdf so I'm thinking no federal taxes. We also reside in the state of issuance, but I'm not sure about state taxes.

So, in January, I will just see it convert to cash in my account?

 

[COcheesehead]

I found this: https://www.rbcwm-usa.com/resources/file-703494.pdf so I'm thinking no federal taxes. We also reside in the state of issuance, but I'm not sure about state taxes.

So, in January, I will just see it convert to cash in my account?

Yes.

 

[MissMolly]

Yes.

Thanks