Accrued discount

Accrued discount

Interest that accumulates on savings bonds from the date of purchase until the date of redemption or final maturity, whichever comes first. Series A, B, C, D, E, EE, F, I, and J are discount or accrual bonds, meaning principal and interest are paid when the bonds are redeemed. Series G, H, HH, and K are income bonds, and the semiannual interest paid to their holders is not included in accrued discount.

Accrued Discount

The interest paid on a savings bond at redemption or maturity. Some savings bonds do not have coupons; their accrued discounts are paid in a single sum at redemption or maturity. That is, when the bond matures or is redeemed, the bondholder receives payment all at once, but receives nothing during the life of the bond. Other savings bonds do have coupons paid in semi-annual tranches; for these bonds, the accrued discount includes the amount in all these tranches plus the money, whether par or below par, received at redemption or maturity. See also: Accrued bond, Income bond.
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Bondholders apportion to each taxable year the amount of OID in the accrual period spanning the two tax years by ratably allocating the period's accrued discount to each day in the period.
(8) For electing taxpayers, inclusion of accrued market discount triggers a basis increase to prevent double taxation on realization of earlier included accrued discount. (9) Once a taxpayer makes this election, current inclusion of market discount as it accrues is required for all bonds acquired during or after the year of the election; (10) inclusion of market discount on bonds acquired in prior years is still deferred until realization.
The basis of a T-bill is increased by amounts of accrued discount and interest included in income prior to disposition or redemption.
The basis of a short-term taxable corporate obligation is increased by amounts of accrued discount included in income prior to disposition or redemption.
Had he previously elected to include market discount in his gross income as it accrued (see Q 7731), no accrued discount would be includable as a result of the gift.
If you sell the debt or pay it off early, any gain in excess of the accrued discount may be considered capital if you're not a dealer in debt instruments.
If the holder does not report the accrued market discount until the bond matures or is sold, a ratable (straight-line) method is used to compute the accrued discount (Sec.
Under the ratable method, the accrued discount since purchasing the bonds is $400 ($1,200 secondary bond discount x 365 + 1096 days).
In the second year the outstanding principal balance is $912.50 ($875 original price plus $37.50 accrued discount).
Had he previously elected to include market discount in his gross income as it accrued (see Q 1110), no accrued discount would be includable as a result of the gift.