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Level 6

How to treat Interest received on defaulted corporate bond

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?

2 Replies
Level 10

How to treat Interest received on defaulted corporate bond

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

Level 14

How to treat Interest received on defaulted corporate bond

capital loss also in the year you sell it  🙂