I agree with CKONDO. The Accrued Market Discount is a Gain from a Sale. That Gain is treated as Interest on the Federal Level. Nevertheless, it is still a Gain, but simply "treated" as Interest on Federal. The states may vary, but the Gain, at least in Massachusetts, is NOT considered interest. I believe it is considered a Gain based on the info from the Mass DOR website. Massachusetts includes the amount as interest, but it is, in fact, still a gain. Please let me know if you think I have this wrong.
Here is the link (scroll down to where the table has Treasury Bonds and Treasury Notes)....
https://www.mass.gov/technical-information-release/tir-80-2-income-tax-treatment-of-interest-and-gai...
