Tax: Interest Income: Original Issue Discount

Original issue discount (OID) is a form of interest on a debt instrument such as a bond or note issued at less than its face amount.  The discount is considered additional interest income.  A debt instrument generally has OID when the instrument is issued for a price less than its stated redemption price at maturity.  OID is the difference between the stated redemption price at maturity and the issue price, and is amortized over the life of the security, recognizing a portion of the discount annually as taxable interest.

In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.