Original Issue Discount (OID) – Form 1099-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.
The IRS has determined that your records are inadequate. Learn how to deal with an IRS letter 1022 from the tax experts at H&R Block.
Get the facts from H&R Block about the U.S. Tax Court, where you can dispute taxes without paying them first, and learn when you can petition the Tax Court.
Due to tax law changes, we know it can be difficult to estimate your refund or balance due. H&R Block experts outline how the changes are reflected in our tax reform calculator.