imputed interest

Imputed Interest

A term used to describe interest considered to be paid, even through no interest payment has been made.

Notes:

Imputed interest is calculated based upon actual payments that are to be paid, but have not yet been paid. This interest is important for discount bonds and other securities that are sold below face value and mature at par. The IRS uses an accretive method for calculating the imputed interest on treasury bonds, which are taxed yearly, even though no interest is paid until maturity.

See also: Accretion, Accrued Interest, Applicable Federal Rate, Discount Bond, Interest

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Imputed interest

Used in accounting to refer to interest that has effectively been paid to a bondholder, even though no money has actually been paid.

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imputed interest

Interest on an investment that is assumed for certain purposes to be paid even though no interest payment is physically received by the investor. For example, the Internal Revenue Service considers annual accretion on a zero-coupon corporate or a zero-coupon Treasury bond to be imputed interest for tax purposes even though investors holding these bonds receive no annual interest payments from the issuers.