Selling a Zero Coupon Bond before maturity

[Novice]

I sold a Zero Coupon Bond prior to maturity.  Do I claim the OID that I never actually received as an Ordinary or Capital Loss?

For example: I bought a zero coupon bond for $25K and each of the past 3 years I have received a 1099-OID of $1K.  I sold the bond prior to maturity for $20K.  The Cost Basis is then $28K (Original purchase + $1K OID x 3).

This results in a net loss of $8K.

Do I claim the $3K as an Ordinary and $5K as a Capital Loss?  Or is all of the loss considered Capital?

Thank You

[Mike9241]

If you bought the bond at its original issuance you have an $8K capital loss.

If you bought it in the secondary market, the OID reported on the tax forms is incorrect because the issuer does not track the bond's activity in the secondary market. The OID on the tax forms is only accurate for the original bondholder.  For a bond purchased in the secondary market, the OID reported must be adjusted if the bond was purchased at a price different than the original issue price plus accrued OID.

If you are a subsequent purchaser this doesn't mean you don't have a capital loss. I have no way of determining what you should have reported as OID. 

i can suggest a method you can use but that requires a present value calculation

basically what you paid + semi-annual compounding based on its maturity date (for example 

say its maturity date was 12/1/2030. Interest would accrue and be compounded semiannually on 6/1 and 12/1)  so if you bought on 4/15, interest would accrue from 4/15 to 6/1. this adds to your cost. then accrued interest based on the new cost from 6/1 to 12/1. this gets added to your cost and so on to maturity where the interest accrued + cost equals maturity value. 

if you over-reported in prior years, you would probably need to amend the open years, I'm not sure how to handle any overreporting prior to the open years.