The market discount is the difference between the acquisition price and the accreted value of a bond. Usually it occurs when you buy a bond in the secondary market.
Market discount Tax Deductions
If the actual price of the bond is less than its par or accrued value (the value gained until maturity), you can claim a tax deduction for this market discount.
Report Accrued Market Discount
You can report the sale or the trade of a market discount using Schedule D, Form 1040.
If you sell the bonds at a profit, you have to report the Accrued Market Discount as ordinary income, along with any loss registered.
You may also report the amount of accrued market discount as interest income on Schedule B, Form 1040 or Form 1040 A.
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