The de minimis rule states that if the market discount (revised issue price less purchase price) is less than 0.250 multiplied by the number of full years to maturity after acquisition, the market discount is treated as a capital gain for tax purposes if the bond is held to maturity or sold for a price above the …

How is market discount calculated?

As an example, if you buy a $1,000 par value bond maturing in 10 years for $985, the market discount is $1,000 – $985 = $15. Since this discount is less than the de minimis threshold of $25 (0.25% of $1,000 x 10 = $25), the market discount is considered to be zero.

How is accrued market discount treated?

An investor who chooses to accrue the market discount over the period during which s/he owns the bond would include the amount accrued each year as interest income. Accruing market discount for tax purposes involves increasing the cost basis each year by the amount of the market discount included as income.

What is the de minimis limit?

De minimis definition The de minimis limit is the threshold below which the exempt input tax is regarded as insignificant. If the annual test is passed, the business may recover any input tax which was was not de minimis in a particular accounting period.

How do I get a market discount on my tax return?

Rather, your form 1099-B for the disposition of the security will report the total accrued market discount in box 1f. You can then follow the instructions on Form 8949 with regard to presenting this amount on your personal income tax return as interest.

What is de minimis rules?

DE MINIMIS RULE BASICS The de minimis rule states that if a discount is less than 0.25% of the face value for each full year from the date of purchase to maturity, then it is too small (that is, de minimis) to be considered a market discount for tax purposes.

When is a discount considered a de minimis gain?

The de minimis rule states that if a discount is less than 0.25% of the face value for each full year from the date of purchase to maturity, then it is too small (that is, de minimis) to be considered a market discount for tax purposes. Instead, the accretion should be treated as a capital gain.

How to calculate the de minimis purchase price?

The steps are shown below: The calculation above that the de minimis threshold is $1,477.50. With the figure, we can determine which form of tax is applied based on the purchase price. If the purchase price is above $1,477.50, it will be treated as capital gains tax.

How to calculate the de minimis tax rule?

Below are the mathematical steps needed to be taken when determining if a bond is subject to capital gain tax or ordinary income tax regarding the de minimis rule. 1. Multiply the face value (bond price when issued) by 0.25%. 2.

What does the de minimis amount on a bond mean?

Translated “about minimal things,” the de minimis amount determines whether the market discount on a bond is taxed as capital gain Capital Gain A capital gain is an increase in the value of an asset or investment resulting from the price appreciation of the asset or investment.