It is worth noting that, under current rules, the holder of a market discount bond does not have to annually include in gross income the accrued market discount.
Accrued market discount generally is ordinary income upon disposal of the bond, thus, the above analysis is only relevant to the stated interest on a mortgage note.
Gain on the disposition of any market discount bond is treated as ordinary income to the extent it does not exceed the accrued market discount
on the bond (Sec.
However, the gain on the sale or redemption of market discount bonds acquired after April 30, 1993 is taxed as ordinary income to the extent of the accrued market discount
If TIPS are purchased in a secondary market at a price below their adjusted principal, the holder reports accrued market discount
as ordinary interest income, either annually or when the bond matures or is sold.
1276 and 1278 in 1984, which require gain on the disposition of notes purchased at a discount to be reported as ordinary income to the extent of accrued market discount
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.
Under the market discount rules, X may elect to have the accrued market discount
taxed currently under rules similar to Sec.
For a sale of debt instrument that is a wash sale and has accrued market discount
, enter code "W" in box 1f and the amount of the wash sale loss disallowed in box 1g.
Under the ratable method, the amount of accrued market discount
is equal to the product of the total market discount and the ratio of days held to the total days between the acquisition and disposition date to the maturity date.
8) For electing taxpayers, inclusion of accrued market discount
triggers a basis increase to prevent double taxation on realization of earlier included accrued discount.
The proposed regulations provide two exceptions to this rule: (1) The broker must assume the customer has elected to use a constant interest rate to determine the amount of accrued market discount
, and (2) the broker must assume that the customer has elected to amortize the bond premium.