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.
You can claim an exemption on IRA withdrawals with Form 5329, but how do you know if you're eligible? Get tax answers at H&R Block.
Changes to the Child Tax Credit for 2021 include increased amounts and advanced payments. Let H&R Block explain everything you need to know.
Does your babysitter or nanny need a 1099 or W-2. Discover which option is right for your household. Get tax answers at H&R Block.
Get the facts about defaulted installment agreements from H&R Block, and learn how to fix the issue if you default your IRS installment agreement.