When you purchase a U.S. Treasury bond at a discount, the accrued market discount is generally taxable as ordinary income at the federal level when the bond is sold or matures.
However, the tax treatment at the state level can vary.
- State Tax: Some states may tax the accrued market discount as ordinary income, while others may exempt it, similar to the interest income from U.S. Treasury bonds.
For more detailed information, you can refer to the following IRS resources:
Provide the state and reach back out for clarifying information.
