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Contingent payment debt instrument - Structured CDs

I had a structured certificate of deposit (FDIC insured) tied to the performance of a market index. The payout of the CD was a "point to point" structure and had no interest payments during the 4 year term. For the past 4 years I was  paying original issue discount interest (phantom interest) from form 1099-OID (about $2000 total for the 4 years total.)

It turns out that the market index declined over the 4 year period. So I simply received the principle back ($25,000) with no profit.

There is a 1099-B showing $25,000 for both basis and proceeds.

Since I didn't make any money I need to know how to "take back" that ~$2000 as a loss. I've been reading Pub 1212, but it is unclear on the exact way to report.

Any suggestions?

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3 Replies

Contingent payment debt instrument - Structured CDs

To the extent there is a loss on the transaction, such loss will be treated as an ordinary loss to the extent of previously recognized OID income inclusions and any excess will be treated as a capital loss.

 

 

Contingent payment debt instrument - Structured CDs

Thank you for the response.

 

I'm wondering *specifically*  how I should report that ordinary loss. Some options would include:

a) report on Schedule B as a negative amount

b) report on line 21 of 1040 (other income) as a negative amount

c) report on line 16 of Schedule A (other deductions not subject to 2% limitation)

I'm not sure where to report.

 

As a related matter, the instructions for form 8949 https://www.irs.gov/pub/irs-prior/i8949--2018.pdf say something about including an adjustment on form 8949 with the letter "O" as the adjustment code.

Contingent payment debt instrument - Structured CDs

From what you wrote either (a) or (b) would work for an ordinary loss and (c) would not work so well because you'd have to be over the standard deduction and there's no way to provide an explanation. The 8949 form adjustment with an "O" will work if the loss is a capital loss.

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