Original Issue Discount

You seem to have a very good handle on all this.

The only fly in the ointment would be if you purchased the OID instrument after the IOP date.

It is amortization of the discount from the redemption price when the bond was originally issued. hence the name OID (original Issue Discount).

Yes, Yes.

See Chapter 1 of PUB 550 on how you handle a bond that has OID and has a market discount.

I did not buy it when the bonds were issued. I bought it on the secondary market months after it was issued.

I am curious as to the amount in question. My guess is than unless the OP is very wealthy or is a very active speculator, the money involved is a pittance compared to the agony of understanding OID and getting the tax correct.

You are right; it is under $60. But since this is reported to IRS, I want to do it correctly so that I don't get a notice from IRS for a small amount. And the amount involved is not worth hiring a pro to do my taxes.

My point is that the amount of revenue the Government gets is small and that the grief and record keeping is out of proportion. We deserve better from our elected representatives. In addition to the record keeping by you, the issuer, the Government, you tax preparer and the costs of printing, handling, and mailing, you get taxable income today that you will ultimately get in inflated dollars.

It might not be necessary to increase your cost basis because brokerage companies are now required to keep track of your cost basis. But I don't know if they have to do this if you purchased the bond before