How to report taxes on escheated bond fund money I'm trying to claim back?

Good question about escheated funds! When you reclaim escheated property like your bond fund, the tax treatment actually depends on several factors. The basic rule is that recovering escheated property itself isn't a taxable event - you're just getting back what was already yours. However, if the state paid you interest on the escheated funds (some states do this), that interest would be taxable as ordinary income. Also, you'll need to determine if there were any unreported capital gains or losses that occurred before the escheatment. The original financial institution should have sent you a 1099-B for the year when the account was escheated, showing any realized gains/losses at that time. Request documentation from both the state unclaimed property office and your original financial institution so you can properly determine what portion might be taxable. The state should provide a statement showing the amount returned and any interest paid.

I went through something similar last year with some stock shares that got escheated. What saved me was using the document analysis tool at https://taxr.ai - they have a specific feature that helps with unusual income situations like escheatment. I uploaded the statement from the state treasurer and my old account statements, and they broke down exactly what needed to be reported where. Saved me so much stress trying to figure out if it was ordinary income, capital gains, or even taxable at all. The best part was that they explained what additional documents I should request from the state (turns out I needed something called a "basis statement") and exactly what lines on Schedule D and Form 8949 needed to be filled out. They even flagged that part of what I received was actually non-taxable return of principal.

Just wanted to follow up and say I tried the taxr.ai service after seeing this thread. My situation was with an escheated 401k account and the state had withheld 20% for taxes when sending me the money. I was super confused about how to report it since I didn't know if it counted as an early distribution penalty or what. Uploaded my documents and they identified that I needed to report it on line 5a of Form 1040 as a retirement distribution, but that I could avoid the 10% penalty by using exception code 12 on Form 5329. They even pointed out that I could claim the state tax withholding on my federal return, which I would have completely missed. Definitely worth checking out if you're dealing with escheated accounts!

Like others here, I faced massive frustration trying to get information about my escheated property tax situation. I spent HOURS on hold with the IRS trying to get guidance since my case was complicated (involved inheritance + escheatment). Eventually someone recommended https://claimyr.com to me - it's a service that gets you connected to an actual IRS agent without the endless wait. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that I needed to report my reclaimed escheated bond funds based on the original cost basis, and that any interest the state paid would go on Schedule B. He also verified that I was eligible for a special basis adjustment due to the inheritance aspect of my situation.

I need to eat crow here. After being skeptical about the Claimyr service, I actually tried it for my escheated stock account issue. Was on the phone with an IRS agent in under an hour after trying for THREE DAYS on my own. The agent explained that escheated funds recovery typically isn't taxable as income, but I needed to complete Form 8949 to reconcile the capital gains that happened before escheatment. She also told me that my state (California) had actually reported some of the account as 1099-INT which I had completely missed, and showed me how to correctly report everything without triggering an audit flag. Honestly shocked at how helpful and knowledgeable the agent was once I finally got through.

For anyone seeing this, I'm a former state treasury employee who worked in unclaimed property. A couple things to note about escheated bond funds: 1) Request a detailed breakdown from the state showing EXACTLY what was remitted to them. Some states will separate interest and principal, others won't. 2) Ask for the "holder report" - this is the document the financial institution submitted when transferring your property to the state. It often contains tax basis info. 3) If your bonds had accrued interest between the last 1099 you received and the escheatment date, you may need to report that interest even if it was years ago (you might need to file an amendment).

Anyone know if TurboTax has a specific section for escheated funds? I'm trying to enter mine but can't find anything specific to unclaimed property recovery.