Page 76 - Interest Income - Individuals Handbook

Original Issue Discount

De minimis OID Example 1 Example 2

 You can treat the  You bought a 10-year bond  The facts are the same
discount as zero if it is with a stated redemption as in Example 1, except

less than one-fourth of price at maturity of $1,000, that the bond was
1% (0.0025) of the issued at $980 with OID of issued at $950. The
$20. One-fourth of 1% of
stated redemption $1,000 (stated redemption OID is $50. Because

price at maturity price) times 10 (the number the $50 discount is
multiplied by the of full years from the date more than the $25

number of full years of original issue to figured in Example 1,
from the date of maturity) equals $25. you must include the
original issue to Because the $20 discount is OID in income as it

maturity. less than $25, the OID is accrues over the term
 This small discount is treated as zero. (If you hold of the bond.
the bond at maturity, you
known as de minimis will recognize $20 ($1,000 −
OID. $980) of capital gain.)

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