Constant yield method

Constant yield method

Allocation of annual interest on a zero-coupon security for income tax use.

Constant Yield Method

A way to calculate the yield on a discount bond or zero-coupon bond for tax purposes. The constant yield method usually results in a lower tax liability but is often more difficult to calculate. One may choose to use the constant yield method or the ratable accrual method when one buys the bond. Afterward, however, one must continue to use the same method until the bond matures or becomes sold.
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0025 X 5 years), X must allocate the OID to each year based on the constant yield method described in Regs.
1272-1(b) constant yield method to allocate the debt issuance costs to each year.
If X chooses to use the constant yield method, the yield would be 5.
If the amount of OID is not de minimis, the points must be amortized using the constant yield method.
Taxpayers currently accounting for stated interest on short-term consumer loans under the Rule of 78s method may automatically change to the constant yield method under the general automatic method change procedures of Rev.
The constant yield method allocates interest and original issue discount over a loan term based on a constant yield.
The ownership interest holder must compute the income from the qualified debt assets under a constant yield method, including the rules of Sec.
For example, if a series of futures contracts or options is used to hedge an interest-rate risk from a taxpayer's issuance of fixed interest-rate debt, any gain or loss on the hedging transactions should be accounted for using a constant yield method over the instrument's life.
Generally, the issue may deduct OID under its overall accounting method (cash or accrual basis) using the constant yield method described in Regs.
This method would also approximate the constant yield method for standard fixed-rate mortgages
27, 1985 must generally use the constant yield method.
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