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Debt Instruments

1984, through April 30, 1985, reduced for the

sition premium under this method, multiply the

acquisition premium, is figured as follows.

Issued After 1984

daily OID by the following fraction.

•

1) Daily OID on date of purchase

If you hold debt instruments issued after 1984,

The numerator is the acquisition premium.

(2nd accrual period) . . . . . . . . . . . . $.32274

you must report part of the discount in gross

•

The denominator is the total OID remain-

income each year that you own the instruments.

2) Acquisition premium . . .

$1,897.17

ing for the instrument after your purchase

You must include the OID in gross income

3) Total days from purchase

date.

whether or not you hold the instrument as a

date to maturity date [(365

capital asset. Your basis in the instrument is

× 19 years) + 4 days for

increased by the OID you include in income. For

leap years] . . . . . . . . .

6,939

Example 14. Assume the same facts as in

information about showing the correct OID on

Example 9, except that you bought the bond for

4) Line 2 ÷ line 3 . . . . . . . . . . . . . . . $.27341

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

$99,000 on August 1, 2002, after its original

Form 1099 – OID. You should receive a Form

issue on August 1, 1983. In this case, you paid

5) Daily OID reduced for the

acquisition premium. Line 1 − line 4 $.04933

1099 – OID showing OID for the part of 2002 you

more for the bond than its $98,637.71 adjusted

held the bond. However, if you paid an acquisi-

issue price ($90,000 + $8,637.71 accrued OID).

The OID you would have included in income

tion premium, you may need to refigure the OID

You paid $362.29 ($99,000 − $98,637.71) ac-

for 1984 is $12.09 ($.04933 × 245 days).

to report on your tax return. See Figuring OID

Assuming you still owned the bond in 2002,

quisition premium. The daily OID for the accrual

using the constant yield method and Reduction

you would have reduced the total OID for each

period August 1, 2002, to July 31, 2003, reduced

for acquisition premium, later.

year (as determined in Example 10) by the allo-

for the acquisition premium, is figured as fol-

You may also need to refigure the OID for a

cable portion of the acquisition premium for that

lows:

contingent payment or inflation-indexed debt in-

year. You would have included the following

strument on which the amount reported on Form

amounts of OID in income.

1) Daily OID on date of purchase

1099 – OID is inaccurate. See Contingent Pay-

(20th accrual period) . . . . . . . . .

$3.72704*

ment Debt Instruments or Inflation-Indexed Debt

Year

OID

Instruments, later.

2) Acquisition premium . . . $362.29

1985 . . . . . . . . . . . . . . . . . . . . .

$ 29.52

Form 1099 – OID not received. If you held an

1986 . . . . . . . . . . . . . . . . . . . . .

48.35

3) Total OID remaining after

OID instrument in 2002 but did not receive a

purchase date ($10,000 −

1987 . . . . . . . . . . . . . . . . . . . . .

69.60

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

1988 . . . . . . . . . . . . . . . . . . . . .

94.67

$8,637.71) . . . . . . . . . . 1,362.29

this publication. The OID listed is for each

1989 . . . . . . . . . . . . . . . . . . . . .

122.92

4) Line 2 ÷ line 3 . . . . . . .

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

1990 . . . . . . . . . . . . . . . . . . . . .

155.35

0.26594

1991 . . . . . . . . . . . . . . . . . . . . .

191.94

listed amount if your debt instrument has a dif-

5) Line 1 × line 4 . . . . . . . . . . . . .

1992 . . . . . . . . . . . . . . . . . . . . .

235.33

0.99117

ferent principal amount. For example, if you

1993 . . . . . . . . . . . . . . . . . . . . .

283.80

have an instrument with a $500 principal

1994 . . . . . . . . . . . . . . . . . . . . .

339.65

6) Daily OID reduced for the

amount, use one-half the listed amount to figure

acquisition premium. Line 1 −

1995 . . . . . . . . . . . . . . . . . . . . .

402.66

your OID.

1996 . . . . . . . . . . . . . . . . . . . . .

477.59

line 5 . . . . . . . . . . . . . . . . . . .

$2.73587

Use the OID shown in Section I – B for the

1997 . . . . . . . . . . . . . . . . . . . . .

560.88

calendar year if you held the instrument the

* As shown in Example 9.

1998 . . . . . . . . . . . . . . . . . . . . .

657.06

entire year. (If your instrument is not listed in

1999 . . . . . . . . . . . . . . . . . . . . .

765.59

The total OID to include in income for 2002

2000 . . . . . . . . . . . . . . . . . . . . .

894.85

Section I – B, consult the issuer for information

2001 . . . . . . . . . . . . . . . . . . . . .

1,038.08

(August 1 – December 31) is $418.59

about the issue price, the yield to maturity, and

($2.73587 × 153 days).

the OID that accrued for 2002.) If you did not

If you held the bond all of 2002, reduce the

hold the debt instrument the entire year, figure

total OID for that year, $1,303.52 (as determined

If you hold the bond until maturity in 2003,

your OID as follows.

in Example 10), by the allocable part of the

multiply the total OID for the year by 0.99117

acquisition premium for 2002, $99.79 ($.27341

1) Look up the daily OID for the first 2002

and subtract the result from the total OID. The

× 365 days). The difference, $1,203.73, is the

accrual period in which you held the instru-

reduced amount is the total OID to be included in

total OID to include in income for 2002.

ment. (See Accrual period under Figuring

income for 2003.

OID using the constant yield method,

Example 12. Assume the same facts as in

Using Section I – A to figure accumulated

later.)

Example 11, except that you bought the bond for

OID. If you bought your corporate debt instru-

$90,102.83. In this case, you bought the bond

2) Multiply the daily OID by the number of

ment in 2002 or 2003 and it is listed in Section

for an amount equal to the original issue price

days in 2002 you held the instrument dur-

I – A, you can figure the accumulated OID to the

plus accumulated OID. Therefore, you did not

ing that accrual period.

date of purchase by adding the following

pay an acquisition premium. You would have

3) Repeat (1) and (2) for any remaining 2002

included $79.07 ($.32274 × 245 days) in income

amounts.

accrual periods in which you held the in-

for 1984. For the remaining years, you would

strument.

have included the amounts figured in Example

1) The amount from the “Total OID to Janu-

4) Add the results of (2) and (3). This is the

10.

ary 1, 2002” column for your debt instru-

OID to include in income for 2002, unless

ment.

Example 13. Assume the same facts as in

you paid an acquisition premium. (The re-

2) The OID from January 1, 2002, to the date

Example 11, except that you bought the bond for

duction for acquisition premium is dis-

of purchase, figured as follows.

$89,500. You did not pay an acquisition pre-

cussed later.)

mium because your cost was less than the ad-

a) Multiply the daily OID for the first ac-

justed issue price. You must include in income

Tax-exempt bond. If you own a tax-exempt

crual period in 2002 by the number of

each year the amounts of OID figured in Exam-

bond, figure your basis in the bond by adding to

days from January 1 to the date of

ple 12. The bonds have market discount, which

your cost the OID you would have included in

purchase, or the end of the accrual pe-

must be reported under the rules explained in

income if the bond had been taxable. You need

riod if the instrument was purchased in

chapter 1 of Publication 550.

to make this adjustment to determine if you have

the second or third accrual period.

a gain or loss on a later disposition of the bond.

Reduction for acquisition premium on debt

Use the rules that follow to determine your OID.

instruments purchased after July 18, 1984.

b) Multiply the daily OID for each subse-

If you bought the debt instrument at an acquisi-

Figuring OID using the constant yield

quent accrual period by the number of

tion premium after July 18, 1984, figure the OID

method. This discussion shows how to figure

days in the period to the date of

includible in income by reducing the daily OID by

OID on debt instruments issued after 1984 using

purchase or the end of the accrual pe-

the daily acquisition premium. However, the

a constant yield method. (The special rules that

riod, whichever applies.

method of figuring the daily acquisition premium

apply to contingent payment debt instruments

c) Add the amounts figured in (2a) and

is different from the method described in the

and inflation-indexed debt instruments are ex-

preceding discussion. To figure the daily acqui-

(2b).

plained later.) OID is allocated over the life of the

Page 9

Publication 1212 - List Of Original Issue Discount Instruments - Department Of Treasury - 2002 Page 9

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