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I bought Treasury Note for long duration, for $1000 par

I had huge discount, i.e i only had to pay $800

How do I reflect this $200 discount in tax return?

Will I be sent an INT form?

Or do I automatically have to enter this discount somewhere.

I'm unsure what to google.

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    Will you be getting any interest payments this year? Sep 3, 2022 at 19:59
  • You bought a financial instrument worth $800 for $800. No profit yet...
    – user253751
    Sep 6, 2022 at 20:56

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Treasury notes and bonds both pay a coupon twice a year (although this can be 'stripped' and held/sold separately) and are often auctioned (issued) at a discount; when you buy any bond discounted at issue by more than a 'minimal' amount it is called Original Issue Discount and treated for tax purposes as amortized over the bond term if more than one year. Shortly after the end of each year, you will receive from your broker 1099-INT showing the interest actually paid, and 1099-OID showing the OID imputed as interest; you include both of them as interest on 1040 line 2b, and detail them on Schedule B if required to file that schedule because you are over the threshold or have special factors such as being a nominee or excluding savings bond interest previously reported. You also add the (taxed) OID to your basis, used to compute capital gain or loss when you sell or redeem the bond; if you hold to maturity the total OID will exactly match the discount and thus your basis will be exactly the par value received, giving no gain or loss. The standard forms for INT and OID are separate, and you can see them on the IRS website, but brokers and institutions may (and IME most do) substitute a single 'composite' 1099 that has sections for B DIV INT OID as applicable.

See Capital gains tax on US treasury bonds and compare 1099-OID: Where to enter in taxes? (corporate) -- and as referenced in both of those IRS pub 550 on the web or downloadable.

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  • So in other words if I owe tax I will get paperwork beforehand, ie INT, OID, etc?
    – Marium
    Sep 21, 2022 at 12:32
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    You will get the 1099's in time to file your return (before April 15). When US tax is 'owed' is slippery; technically it isn't 'assessed' until you file (or if you don't file, the IRS may eventually do a 'substitute' return) but you are nevertheless supposed to pay most of it during the year, before you know the figures on your return, by withholding or estimated payments, and if you don't, you may owe in addition what is described (in law and on form 2210) as a penalty but actually amounts to interest for late payment. This is too complicated for a comment but there are existing Qs. Sep 23, 2022 at 7:21

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