Selling a Zero Coupon Bond before maturity

Forum|Forum|1 year ago
March 3, 2025
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I sold a Zero Coupon Bond prior to maturity. Do I claim the OID that I never actually received as an Ordinary or Capital Loss?

For example: I bought a zero coupon bond for $25K and each of the past 3 years I have received a 1099-OID of $1K. I sold the bond prior to maturity for $20K. The Cost Basis is then $28K (Original purchase + $1K OID x 3).

This results in a net loss of $8K.

Do I claim the $3K as an Ordinary and $5K as a Capital Loss? Or is all of the loss considered Capital?

Thank You

Not A Product Question

mglauner

Generally, yes, the 3K would all be reported as ordinary interest income. Depending on the type of note, the date and how it was purchased/sold, the 5K difference between cost basis and sale price could be Capital Loss.

Here's more info on How to handle both interest and capital gains on US Treasury Notes purchased at a discount.

@Novice