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Bond taxation basics - taxation of bonds held to maturity

DXY2021 — Tue, 10 Mar 2026 06:40:51 GMT

Hello - i'm doing some research on treasury bonds and it need clarification on taxation please - thanks for any help !

Question 1 - So lets say i'm buying a treasury bond not through treasury direct but through a Fidelity, T Rowe, Wells or company like that - i'm assuming that is referred to "secondary market" - is this terminology correct?

Questions 2 - More detailed, let's say I buy a treasury bond with (made up #'s) an offer price of 98.0 and a coupon of 2.3% with a coupon date of 1/31/23 and maturity of 3/31/23. If i always hold this to maturity is the 100 - 98 = 2 taxed as interest? or capital gain? i'm also assuming the 2.3% coupon payment is interest is well? does the 1099 split these out or is it all easily lumped into interest? 1099-int

thanks for feedback. My concern from reading the forums is the detailed accounting it seems like for bonds. But if i understand correctly, that accounting is only if you SELL a bond before maturity on the market? is this correct? With all the accounting it makes me wonder if CD's are just more straightforward and all interest 1099-int (again, assuming i always hold it to maturity)

thanks for any help and appreciate it !

Re: Bond taxation basics - taxation of bonds held to maturity

Anonymous_ — Wed, 30 Nov 2022 01:53:03 GMT

@Mike9241

Re: Bond taxation basics - taxation of bonds held to maturity

Mike9241 — Wed, 30 Nov 2022 06:01:06 GMT

market discount is the amount by which the bond's stated redemption price at maturity exceeds the taxpayer's in the bond immediately after acquisition in the secondary market {IRC 1278(a)(2)}. A taxpayer can choose to accrue the market discount and include it annually in their return as interest income. Otherwise, when the bond is disposed of, gain is ordinary interest income up to the amount of the accrued market discount (a)(1) of the same code section.

Original Issue Discount is when a bond is originally offered for less than the redemption value. for example, if the current rate for a bond was 7% but the issuer only wanted to pay 5% it would issue them for less than par value. a market discount bond also has OID, the market discount is the sum of the bond's issue and the total OID includible in the gross income of all holders before the taxpayer acquired the bond, reduced by the taxpayer's basis in the bond immediately after acquisition The only government OID securities that I'm aware of are the savings bonds and T-bills.

if you want to know more about bond discount see IRS PUBS 550 and 1212

https://www.irs.gov/pub/irs-pdf/p550.pdf

https://www.irs.gov/pub/irs-pdf/p1212.pdf

Re: Bond taxation basics - taxation of bonds held to maturity

NCperson — Wed, 30 Nov 2022 11:15:24 GMT

this might help:

https://www.treasurydirect.gov/marketable-securities/treasury-bills/

Bills: (under 1 year maturity)

Interest rate

Fixed at auction. For bills, "interest" is the difference between what you paid and the face value you get when the bill matures.

Notes (1 year or greater maturity)

Interest rateInterest paid

The rate is fixed at auction. It doesn’t change over the life of the note.
It is never less than 0.125%.
See Results of recent note auctions.

Every six months until maturity

that you are buying these securities via a middle man (the secondary market) doesn't change what you are buying and therefore the calculation of interest.

By the way, buying directly from Treasury Direct is VERY EASY