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.
Get the latest updates on the Protecting Americans from Tax Hikes Act. Learn how the PATH Act may affect your tax refund this year.
Wondering how to use your tax refund? You can save your tax refund or pay down debt to improve your financial situation. Learn more at H&R Block.
The IRS will usually audit a tax return within three years after the return was filed. Learn more about IRS audit procedures from the experts at H&R Block.
Learn more about the latest updates for 2018 tax withholding with H&R Block. Find out how your paycheck may be impacted by the new 2018 withholding tables.