Page 71 - Interest Income - Individuals Handbook

Bonds Sold Between Interest Dates

Bonds

 If you sell a bond between interest payment dates, part
of the sales price represents interest accrued to the date
of sale.

 You must report that part of the sales price as interest
income for the year of sale.

 If you buy a bond between interest payment dates, part
of the purchase price represents interest accrued before
the date of purchase.

 When that interest is paid to you, treat it as a nontaxable
return of your capital investment, rather than as interest

income.
 See Accrued interest on bonds under How To Report
Interest Income in chapter 1 of Pub. 550 for information

on reporting the payment.

69