Get
Answers

Finding answers to your tax questions is now less taxing.

Browse Tax Articles

H&R Block Tax Professionals relentlessly focus on making sure you profit from every deduction and credit available.

X

Original Issue Discount (OID)

Original issue discount (OID) is a form of interest. It usually occurs when companies issue bonds at a price less than their redemption value at maturity. The difference between these two amounts is the OID.

For bonds issued after 1984, the OID is treated as interest. It's taxable as it accrues over the term of the bond. You also get to increase your basis in the bond by the amount of OID included in income. This reduces your capital gain -- or increases your loss -- when you sell it.

If the bond was issued before 1985, special rules apply:

  • Bonds issued after May 27, 1969, but before 1985 -- If the underlying instrument is a capital asset, add OID to the basis as it accrues each year.
  • Bonds issued before May 28, 1969 -- No addition to basis is allowed for OID

The bond issuer will send you a Form 1099-OID. This form shows the amount of OID (box 1) to include in your income. Sometimes you might need to recalculate the OID. Ex: You bought the bond after the date it was originally issued, and you paid a premium for it.

To learn more, see Publication 1212: Guide to Original Issue Discount (OID) Instruments at www.irs.gov.

Look At Your Life Through Taxes

H&R Block Tax Professionals relentlessly focus on making sure you profit from every deduction and credit available.

Calculate Your Refund

H&R Block Tax Professionals relentlessly focus on making sure you profit from every deduction and credit available.

Get Answers To Your Tax Questions

H&R Block Tax Professionals relentlessly focus on making sure you profit from every deduction and credit available.

Read Our Blog

The latest news from the pros at H&R Block.

Take A Look
Read our blog

H&R Block Community

Looking at life through tax, join the conversation.

See More

Tax Videos

Visit our Youtube channel.

Watch Now