Tax treatment of 2022 Puerto Rico bond exchange

[TheIntegrator]

I cannot find any information on the tax treatment of the Puerto Rico bond exchange.  Does anyone have knowledge or info on this?  It appears the old bonds were exchanged for cash and new bonds, but I have no idea on how to distribute the basis of the original bonds to the cash and new bonds.

[mdfled]

I have the same question and I've been unable to find reliable information.  Clearly bond holders took a haircut with the exchange.  I've got some "return of principal" and "merger" lines on my 1099 with no cost basis.  This really irks me in that the bonds were supposed to be federal tax free.  Did you find an answer?  I'd like to see what you have found.  

[DaveF1006]

If the cash was not distributed to you, then the amount of cash received from the old bonds are added to the cost basis of the new bonds. Keep a record of this because it is important when the bonds are redeemed.

As far as determining the basis of the old bonds to report in the sales section, do you have any reliable method to figure out what you paid for them originally.  Mdfled, the return of principal suggest to me that this was the original basis of the bond and you can report this as a cost basis. TheIntegrator:  Do you have any reliable historical information retained suggesting what you paid for the bonds?

As far as the bonds being taxable, the interest paid on the bonds is federally taxable thus any money earned over and above your cost basis in the bonds is taxable and can result in a taxable event.

@TheIntegrator @mdfled 

[TheIntegrator]

I had to put a spreadsheet together to try to tie each cash payment and each new bond with the old bonds I had. 

I found this document that has the issue price of the new bonds, I could then add up the value of the new bonds along with the cash to compare with the proceeds reported on the 1099-B I received.

https://emma.msrb.org/P11599957-P11234319-P11657002.pdf

This huge document might also be of interest:

https://www.aafaf.pr.gov/wp-content/uploads/GO-Restructured-Bonds-Series-2022A.pdf

This site was helpful in getting some info:
https://emma.msrb.org/Security/Details/?id=74514L3E5

I think with that I am able to know the basis for the new bonds, but hopefully my broker is also tracking that.

I think my broker made a mistake in one case, they have my 74514L4G9 bond which was spun off from 745220EZ2 with a cost of zero.  So I think they have the proceeds of 745220EZ2 wrong because it just shows the cash received.

[mdfled]

Thanks TheIntegrator, you've given me much more information than any of the various brokers and "tax experts" I've talked with.   Funny but several calls to E*Trade were a waste of time, and TurboTax takes the IRS approach and doesn't have anything to help figure this out. 

These documents are what I've been looking for.  I had looked at the web site you have linked for bond transactions, but I hadn't run across the monster document in my searches.   I'll take your method and create a spreadsheet for the bonds I still own.  Thanks again!

[mdfled]

Thanks for the reply Dave, unfortunately my question wasn't about how to establish cost basis for any old security, but establishing a cost basis for bonds that have been through a bankruptcy and taking a big haircut on the principal.  By the way, not all interest on bonds are taxable at the federal level, if I'm understanding your response correctly, the bonds were originally sold as tax free bonds so I'm not sure your answer about interest is correct, unless of course the settlement changed the status of the bonds from tax free to taxable; which is one of the items I'm trying to figure out.