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3) Debt instruments issued after July 1, 1982,

issue price and the OID that accrued for 2002.) If

OID in your 2002 income. You did not pay an

and before 1985.

you did not hold the instrument the entire year,

acquisition premium because you bought the

figure your OID using the following method.

bonds for less than the sum of the original issue

4) Debt instruments issued after 1984 (other

price plus accumulated OID. The bonds have

than debt instruments described in (5) and

1) Divide the OID shown for 2002 by 12.

market discount, which must be reported under

(6)).

the rules explained in chapter 1 of Publication

2) Multiply the result in (1) by the number of

5) Contingent payment debt instruments is-

550.

complete and partial months (for example,

sued after August 12, 1996.

months) you held the debt instrument

Transfers during the month. If you buy or

in 2002. This is the OID to include in in-

6) Inflation-indexed debt instruments (includ-

sell a debt instrument on any day other than the

come unless you paid an acquisition pre-

ing Treasury inflation-indexed securities)

same day of the month as the date of original

mium. The reduction for acquisition

issued after January 5, 1997.

issue, the ratable monthly portion of OID for the

premium is discussed next.

month of sale is divided between the seller and

Zero coupon instrument. The rules for figur-

the buyer according to the number of days each

Reduction for acquisition premium. If you

ing OID on zero coupon instruments backed by

held the instrument. Your holding period for

bought the debt instrument at an acquisition

U.S. Treasury securities are discussed under

this purpose begins the day you acquire the

premium, figure the OID to include in income as

Figuring OID on Stripped Bonds and Coupons,

instrument and ends the day before you dispose

follows.

later.

of it.

1) Divide the total OID on the instrument by

Example 8. Assume the same facts as in

the number of complete months, and any

Corporate Debt Instruments

Example 5, except that you bought the bonds on

part of a month, from the date of original

Issued After 1954 and

September 14, 2001, for $9,643.38 ($9,000 is-

issue to the maturity date. This is the

Before May 28, 1969,

sue price plus $643.38 accumulated OID) and

monthly OID.

and Government Instruments

sold them on March 14, 2002. You figure the

OID to include in your 2001 income as follows.

Issued After 1954 and

2) Subtract from your cost the issue price and

Before July 2, 1982

the accumulated OID from the date of is-

Amount for September ($2.78 × 17 days ÷

sue to the date of purchase. (If the result is

30 days) . . . . . . . . . . . . . . . . . . . . $ 1.58

If you hold these debt instruments as capital

zero or less, stop here. You did not pay an

Amount for complete months October

assets, you include OID in income only in the

acquisition premium.)

through December ($2.78 × 3 months)

8.34

year the instrument is sold, exchanged, or re-

3) Divide the amount figured in (2) by the

deemed, and only if you have a gain. The OID,

Total to include in 2001 income . . . . . .

$9.92

number of complete months, and any part

which is taxed as ordinary income, generally

of a month, from the date of your purchase

equals the following amount.

You figure the OID to include in your 2002

to the maturity date.

income as follows.

number of full months

4) Subtract the amount figured in (3) from the

you held the instrument

Amount for complete months January

amount figured in (1). This is the OID to

X original issue

number of full months

through February ($2.78 × 2 months) . . $ 5.56

discount

include in income for each month you hold

from date of original issue

Amount for March ($2.78 × 13 days ÷

the instrument during the year.

to date of maturity

31 days) . . . . . . . . . . . . . . . . . . . .

1.17

The balance of the gain is capital gain. If

Total to include in 2002 income . . . . . .

$6.73

Example 5. On June 1, 1982, Acme Corpo-

there is a loss on the sale of the instrument, the

ration issued 30-year bonds at 90% of the princi-

entire loss is a capital loss and no OID is re-

You increase your basis in the bonds by the

pal amount. On February 1, 2002, you bought

ported.

OID you include in income. Your basis in the

Acme bonds with a $10,000 principal amount on

bonds when you sold them is $9,660.03

the open market for $9,800. The amount you

($9,643.38 cost + $9.92 OID for 2001 and $6.73

Corporate Debt Instruments

must include in income is figured as follows:

OID for 2002).

Issued After May 27, 1969,

1) Monthly OID ($1,000 total

and Before July 2, 1982

OID ÷ 360 months) . . . . . . . . . . . . .

$2.78

Debt Instruments Issued After

If you hold these debt instruments as capital

July 1, 1982, and Before 1985

2) Your cost . . . . . . . . . . .

$9,800.00

assets, you must include part of the discount in

Minus: Issue price . . . . . .

9,000.00

income each year you own the instruments. For

If you hold these debt instruments as capital

$ 800.00

information about showing the correct OID on

assets, you must include part of the OID in

Minus: Accumulated OID

($2.78 × 236 months) . . . .

your tax return, see the discussion under How

656.08

income each year you own the instruments and

Acquisition premium . . . .

$ 143.92

To Report OID, earlier. Your basis in the instru-

increase your basis by the amount included. For

ment is increased by the OID you include in

information about showing the correct OID on

3) Acquisition premium divided

income.

your tax return, see How To Report OID, earlier.

by number of complete and

partial months from date of

Form 1099 – OID. You should receive a Form

purchase to maturity date

1099 – OID showing OID for the part of the year

($143.92 ÷ 124 months) . . . . . . . . . .

1.16

you held the bond. However, if you paid an

acquisition premium, you may need to refigure

4) Line 1 minus line 3 . . . . . . . . . . . .

$1.62

the OID to report on your tax return. See Reduc-

the OID to report on your tax return. See Figur-

You must include $17.82 ($1.62 × 11

tion for acquisition premium, later.

ing OID using the constant yield method and the

months) in income for 2002 because the acqui-

discussions on acquisition premium that follow,

Form 1099 – OID not received. If you held an

sition premium reduces the ratable monthly por-

later.

OID instrument in 2002 but did not receive a

tion of OID.

Form 1099 – OID, refer to Section I – A later in

Form 1099 – OID not received. If you held an

this publication. The OID listed is for each

OID instrument in 2002 but did not receive a

Example 6. Assume the same facts as in

$1,000 of redemption price. You must adjust the

Example 5, except that you bought the bonds for

Form 1099 – OID, refer to Section I – A later in

listed amount if your debt instrument has a dif-

this publication. The OID listed is for each

$9,656.08. In this case, your cost equals the

ferent principal amount. For example, if you

$1,000 of redemption price. You must adjust the

original issue price plus accumulated OID.

have an instrument with a $500 principal

listed amount if your debt instrument has a dif-

Therefore, you did not pay an acquisition pre-

mium. For 2002, include $30.58 ($2.78 × 11

amount, use one-half the listed amount to figure

ferent principal amount. For example, if you

your OID.

have an instrument with a $500 principal

months) of OID in income.

If you held the instrument the entire year, use

amount, use one-half the listed amount to figure

the OID shown in Section I – A for calendar year

Example 7. Assume the same facts as in

your OID.

2002. (If your instrument is not listed in Section

Example 5, except that you bought the bonds for

If you held the debt instrument the entire

I – A, consult the issuer for information about the

$9,400. In this case, you must include $30.58 of

year, use the OID shown in Section I – A for

Page 7

Publication 1212 - List Of Original Issue Discount Instruments - Department Of Treasury - 2002 Page 7

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