A certain investor buys a a Municipal bond for $10,000. He then collects $3000 of tax free interest from the bond and after some time sells the bond for $8000. Does he have a capital loss for tax purposes? and if so, how much?

Note: The investor lives in the United States and is a citizen of the United States.



The investor has $2000 capital loss. The dividends were recognized as income already, and as such are not affecting the basis. They're just not taxed.

  • It's tax-free "Interest" income, not "dividend" income. – michael Jan 14 '16 at 14:16
  • @michael same thing. – littleadv Jan 14 '16 at 22:04
  • If you believe them to be the same thing, pls explain. – michael Jan 15 '16 at 23:40
  • @michael it doesn't matter in this context. Depending on the type of the investment it is either dividends or interest, but it is entirely irrelevant. – littleadv Jan 16 '16 at 3:17
  • @litleadv... got it... "context is everything" – michael Jan 17 '16 at 14:08

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