How to treat Interest received on defaulted corporate bond

[ceberus]

I received a coupon payment for $500 in June on a corporate bond.   3 months later in September the company filed for bankruptcy.  Do i have to pay tax on the $500 coupon, or can I use the $500 to reduce my basis?

[halpalms]

you pay tax on the interest.....capital loss on the bond in the year in becomes worthless.

[NCperson]

capital loss also in the year you sell it  🙂