Unit Investment Trusts are often
abbreviated to UIT on your brokerage
firm statements. UIT's are trust
entities which are established to
hold securities which are not actively
managed. The trustee simply collects
interests, dividends, sales proceeds,
and principal repayments and distributes
the cash pro-rata to the UIT investors.
Unit Investment Trusts holding bonds
are often sold at a premium to the par
value of the bonds held inside the UIT.
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Your Form 1099-B at year-end will list all
the principal repayments you received
from UIT's that year. The way to report
these on your tax return is simply to follow
the same method as in the case of a bond
bought at a premium. If it is a UIT holding
a taxable bond portfolio, follow the rules
for premiums on taxable bonds. If it is a
municipal bond portfolio inside the UIT,
follow the rules for premiums on
tax-exempt bonds.
Don't just report the principal repayment
amount as your cost basis for a taxable
bond UIT! You end up losing the tax
savings you are entitled to claim from
the premium you paid for the UIT.
You have basis! Use it!
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