Market discount accretion generally requires reporting a portion of the market discount annually as additional interest and increase the basis by the same amount.
I the bond defaults or stops paying bond interest, is the taxpayer required to continue the mkt disc. accretion? If no, when does the accretion stops -- after the last interest payment?
And when does the accretion begins again -- when it comes out of bankruptcy?
And if the defaulted bond is exchanged for new bonds at a lower face value, what happens to the basis; and when can one take a capital loss -- upon sale of the new replacement bond? Or when the replacement occurs?
TIA