I figured this out. The issue is a TIP that I bought at a significant premium. For each year, my broker reports the interest earned by this bond and the amortized premium for the year. For this bond, the amortized premium will exceed the interest every year. In each year, I have to limit the amount of the amortized premium to the amount of interest it earned. This will reduce my cost basis of the bond by the limited amortization amount. The remaining amortization is carried over into the next year. This carryover will accumulate over the life of the bond. In the year that I dispose of the bond, I use the carried over amortization to reduce the cost basis of the bond. Ideally all of this amortization will reduce my cost basis to the face value of the bond.
It will be interesting to see how my broker handles the final year. I believe that I will have to track the annual carryovers and then enter them on Schedule A in the year I sell, or the bond matures. Unfortunately, I don't itemize, so I will not be getting the deduction unless the rules change.
