1099-B GNMA interest/principal distributions

After further review, i believe i understand better now. The interest is reported on 1099-INT, return of principal on 1099-B.

So now my ? is: Is the interest from GNMA Mortgage-backed securities FULLY TAXABLE?

Thanks for you help with this.

If I understand you correctly. Return of principal reduces the basis in the investment. Therefore, its not taxable. However, when the security is sold, the basis must be adjusted to reflect this distribution.

I report is on Schedule D showing no gain or loss.

The return of principal is not taxed and it does reduce the basis. However, any return of principal which reduces the basis below zero must be reported as capital gains.

Beg to differ but each monthly mortgage-backed security payout has an interest and principal component. The interest should be reported on 1099-INT. The principal should be reported as a non-taxable distribution. The principal amount is applied against basis to reduce basis to zero. At that point (and until redemption) any principal received is capital gain. Usualy at redemption the security is redeemed at a fraction of its face value. You cannot double dip by not claiming the principal portion as current income and then at redemption claim an inflated capital loss.