Final answer:
Katrina must report $4,500 in interest income for 2016. Her adjusted basis for the bonds on January 1, 2017 would be $77,500.
Step-by-step explanation:
a. In 2016, Katrina must report the interest income from the tax-exempt bonds she purchased. The interest income can be calculated using the formula:
Interest Income = Face Value of Bonds × Annual Interest Rate
Given that the face value of the bonds is $75,000 and the annual interest rate is 6%, the interest income for 2016 would be $4,500.
b. To calculate Katrina's adjusted basis for the bonds on January 1, 2017, we need to subtract the amount of interest income reported in 2016 from the purchase price of the bonds. The adjusted basis can be calculated using the formula:
Adjusted Basis = Purchase Price - Interest Income
Given that Katrina purchased the bonds for $82,000 and reported $4,500 in interest income, her adjusted basis for the bonds on January 1, 2017 would be $77,500.