How to adjust cost basis of a matured market linked certificate of deposit?

ronyuan · ‎March 4, 2022

I bought a market-linked CD. And for the past five years, I reported (let's say) $200 in my 1099-OID each year.

In 2021, the CD matured and my 1099-B reported that I have a ordinary gain of $3000 (sale price minus the purchase price).

In my 1099-INT, the only non-zero number is interest shortfall on contingent payment debt of -$1000 (to my understanding, the total OID reported during the past five years).

Should I adjust my cost basis by + 5*$200 = $1000 and only report $3000-$1000 = $2000 as my ordinary gain in 2021. The reason is that I have already reported the $1000 in the form of OID as taxable income in previous years. Does this sound correct? Should I adjust it in the third option in the attached picture? I would greatly appreciate any suggestion! Thanks!

ErnieS0 · ‎March 5, 2022

Yes. Add the amount of previously taxed original issue discount to your cost basis.

The IRS says "In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable."

See Publication 1212 (01/2022), Guide to Original Issue Discount (OID) Instruments

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