@taxamedmed - the taxable withdrawal from the traditional IRA is based on the market value of what you transfered, using the market value on the day of the transfer.
then that number creates the cost basis.
Inside a traditional IRA 'cost basis" of individual holdings has no meaning for tax purposes. It's the tax basis of the entire IRA that matters. In most cases, that tax basis is zero.
in your example, assuming the tax basis of the Traditional IRA is zero, if the bond are worth $17,800 at the close of trading on the day you withdrawl it from the Traditional IRA, you will owe ordinary income tax on the entire $17,800. You'll have to come up with that cash to pay the taxes from another source.
When you eventually sell the bonds, the capital gain or loss is measured against the cost basis. in this example that cost basis would indeed be the $17,800. if you hold to maturity, the capital gain will be $2,200.
