Theresa, a cash basis taxpayer, purchased a bond on July 1, 2014, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2018, she sold the bond for $9,800, which included $200 of accrued interest.

Question

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Theresa has $200 interest income from the accrued interest included in the sale price and a $400 loss from the bond ($10,000 purchase price - $9,800 sale price excluding interest).

Theresa, a Cash Basis Taxpayer, Purchased a Bond on July