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Hi AmyC,

Thank you for finding and sending the Wisconsin Tax Bulletin.  I searched for and found the same Wisconsin Tax Bulletin after I submitted my question to the TT Community.  If you read the Bulletin carefully, it indicates that gains and losses in Treasury notes and bonds held for more than one year (regardless if they were held to maturity or voluntarily sold) are considered "capital assets."  See below the wording I copied from the  Bulletin detailing tax treatment of capital gains for long term government treasury notes and bonds.

 

II.
Gain or Loss on U.S. Government Obligations Wisconsin Statute 71.05 (1) (b) provides tor a
subtraction modification for U.S. government interest which is exempt from state taxation under federal law.
Although U.S. government interest is not taxable for Wisconsin income tax purposes, gains resulting from the
disposition of negotiable government securities are taxable. Therefore, when a sale occurs, a taxpayer must
distinguish between tax-exempt interest income and any gain realized.  Long-term (maturity in excess of one year from date of iissue) government obligations such as treasury notes and treasury bonds are interest-bearing securities which are originally issued at par and are redeemable at par on the maturity date. These securities are freely negotiable instruments and will fluctuate in price in the open market.

If held for investment purposes they qualify as capital assets.  Interest income received on long-term government obligations is not subject to Wisconsin income tax.  If the securities are sold between interest dates, the accrued interest is not taxable to the seller.  Although originally issued at par, U.S. Treasury notes and bonds are often purchased at a discount or premium by subsequent holders. Neither the discount nor the premium paid has any affect on the amount of tax exempt interest income. The discount or premium will
affect the gain or loss realized on the sale or redemption of the securities.

 

The Bulletin goes on to give several examples of how WI handles gains and losses on Treasury notes and bonds that I didn't post in this response.  Still, thank you for your research and response.