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accrued market discount

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Accrued market discount
The rise in the market value of a discount bond as it approaches maturity (when it is redeemable at par) and not because of falling market interest rates.

accrued market discount
The gain in the value of a bond that occurs because the bond has been bought at a discount from face value. For example, a $1,000 par bond maturing in ten years and selling at $800 can be expected to rise gradually in price throughout its remaining life. The accrued market discount is the portion of any price rise caused by the gradual increase (as opposed to an increase caused by a fall in interest rates).


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A discount on a secondary market acquisition (a market discount), on the other hand, would, at the taxpayer's option, either be (1) treated as ordinary income to the extent of accrued market discount at the time the taxpayer redeems or otherwise disposes of the instrument; or (2) accrued as interest income ratably over the period he or she holds the bond.
(Since the bonds were purchased after April 30, 1993, the gain is taxed as ordinary income to the extent of accrued market discount.
 
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