Original Issue Discount (OID): Investment Taxes (2025 IRS Guide)
This guide covers “Original Issue Discount (OID)” within investment taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.
Adapted from Publication 550 (2025), Investment Income and Expenses, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.
Context for these rules
A debt instrument, such as a bond, note, debenture, or other evidence of indebtedness, that bears no interest or bears interest at a lower than current market rate usually will be issued at less than its face amount. This discount is, in effect, additional interest income. The following are some types of discounted debt instruments.
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U.S. Treasury bonds.
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Corporate bonds.
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Municipal bonds.
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Certificates of deposit.
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Notes between individuals.
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Stripped bonds and coupons.
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Collateralized debt obligations (CDOs).
Original Issue Discount (OID)
OID is a form of interest. You generally include OID in your income as it accrues over the term of the debt instrument, whether or not you receive any payments from the issuer.
A debt instrument generally has OID when the instrument is issued for a price that is less than its stated redemption price at maturity. OID is the difference between the stated redemption price at maturity and the issue price.
All debt instruments that pay no interest before maturity are presumed to be issued at a discount. Zero coupon bonds are one example of these instruments.
The OID accrual rules generally do not apply to short-term obligations (those with a fixed maturity date of 1 year or less from date of issue). See Discount on Short-Term Obligations, later.
For information about the sale of a debt instrument with OID, see Original issue discount (OID) on debt instruments, later.
De minimis OID.
You can treat the discount as zero if it is less than one-fourth of 1% (0.0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. This small discount is known as “de minimis” OID. In the case of a debt instrument providing for more than one stated principal payment (an installment obligation), the “de minimis” formula described above is modified. See Regulations section 1.1273-1(d)(3).
Example 1.
You bought a 10-year bond with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. One-fourth of 1% of $1,000 (stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Because the $20 discount is less than $25, the OID is treated as zero. (If you hold the bond at maturity, you will recognize $20 ($1,000 − $980) of capital gain.)
Example 2.
The facts are the same as in Example 1, except that the bond was issued at $950. The OID is $50. Because the $50 discount is more than the $25 figured in Example 1, you must include the OID in income as it accrues over the term of the bond.
Debt instrument bought after original issue.
If you buy a debt instrument with de minimis OID at a premium, the discount is not includible in income. If you buy a debt instrument with de minimis OID at a discount, the discount is reported under the market discount rules. See Market Discount Bonds, later in this chapter.
Exceptions to reporting OID as current income.
The OID rules discussed here do not apply to the following debt instruments.
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Tax-exempt obligations. (However, see Stripped tax-exempt obligations, later.)
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U.S. savings bonds.
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Short-term debt instruments (those with a fixed maturity date of not more than 1 year from the date of issue).
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Loans between individuals, if all the following are true.
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The loan is not made in the course of a trade or business of the lender.
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The amount of the loan, plus the amount of any outstanding prior loans between the same individuals, is $10,000 or less.
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Avoiding any federal tax isn’t one of the principal purposes of the loan.
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A debt instrument purchased at a premium.
Form 1099-OID
You may receive a Form 1099-OID for a debt instrument you own. If you receive a Form 1099-OID (Rev. 1-2024), box 1 will show any “Original issue discount for the year”; box 2 will show any “Other periodic interest”; and box 8 will show any “Original issue discount on U.S. Treasury obligations.”
In most cases, you must report the entire amount in Form 1099-OID, boxes 1, 2, and 8 as interest income. But see Refiguring OID shown on Form 1099-OID, later in this discussion, and also Original issue discount (OID) adjustment, later in this chapter, for more information.
Form 1099-OID not received.
If you had OID for the year but did not receive a Form 1099-OID, you may have to figure the correct amount of OID to report on your return. See Pub. 1212 for details on how to figure the correct OID.
Nominee.
If someone else is the record holder (the registered owner) of an OID instrument belonging to you and receives a Form 1099-OID on your behalf, that person must give you a Form 1099-OID.
If you receive a Form 1099-OID that includes amounts belonging to another person, see Nominee distributions, later.
Refiguring OID shown on Form 1099-OID.
You may need to refigure the OID shown in Form 1099-OID, box 1 or box 8 if either of the following apply.
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You bought the debt instrument after its original issue and paid a premium or an acquisition premium.
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The debt instrument is a stripped bond or a stripped coupon (including certain zero coupon instruments). If you acquired your debt instrument before 2014, your payer is only required to report a gross amount of OID in Form-1099–OID, box 1 or box 8. See Figuring OID, later in this chapter.
Premium.
You bought a debt instrument at a premium if its adjusted basis immediately after purchase was greater than the total of all amounts payable on the instrument after the purchase date, other than qualified stated interest.
If you bought an OID debt instrument at a premium, you generally do not have to report any OID as ordinary income.
Qualified stated interest.
In general, this is stated interest unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually at a fixed rate.
Acquisition premium.
You bought a debt instrument at an acquisition premium if both the following are true.
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You did not pay a premium.
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The instrument's adjusted basis immediately after purchase (including purchase at original issue) was greater than its adjusted issue price. This is the issue price plus the OID previously accrued, minus any payment previously made on the instrument other than qualified stated interest.
Refiguring periodic interest shown on Form 1099-OID.
If you disposed of a debt instrument or acquired it from another holder during the year, see Bonds Sold Between Interest Dates, earlier, for information about the treatment of periodic interest that may be shown in Form 1099-OID, box 2 for that instrument.
Applying the OID Rules
The rules for reporting OID depend on the date the long-term debt instrument was issued.
Debt instruments issued after May 27, 1969 (after July 1, 1982, if a government instrument), and before 1985.
If you hold these debt instruments as capital assets, you must include a part of the discount in your gross income each year that you own the instruments.
Effect on basis.
Your basis in the instrument is increased by the amount of OID you include in your gross income.
Debt instruments issued after 1984.
For these debt instruments, you report the total OID that applies each year regardless of whether you hold that debt instrument as a capital asset.
Effect on basis.
Your basis in the instrument is increased by the amount of OID you include in your gross income.
Certificates of Deposit (CDs)
A CD is a debt instrument.
If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.
This also applies to similar deposit arrangements with banks, building and loan associations, etc., including:
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Time deposits,
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Bonus plans,
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Savings certificates,
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Deferred income certificates,
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Bonus savings certificates, and
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Growth savings certificates.
Bearer CDs.
CDs issued after 1982 generally must be in registered form. Bearer CDs are CDs not in registered form. They are not issued in the depositor's name and are transferable from one individual to another.
Banks must provide the IRS and the person redeeming a bearer CD with a Form 1099-INT.
Time deposit open account arrangement.
This is an arrangement with a fixed maturity date in which you make deposits on a schedule arranged between you and your bank. But there is no actual or constructive receipt of interest until the fixed maturity date is reached. For instance, you and your bank enter into an arrangement under which you agree to deposit $100 each month for a period of 5 years. Interest will be compounded twice a year at 7½%, but payable only at the end of the 5-year period. You must include a part of the interest in your income as OID each year. Each year the bank must give you a Form 1099-OID to show you the amount you must include in your income for the year.
Redemption before maturity.
If, before the maturity date, you redeem a deferred interest account for less than its stated redemption price at maturity, you can deduct OID that you previously included in income but did not receive.
Renewable certificates.
If you renew a CD at maturity, it is treated as a redemption and a purchase of a new certificate. This is true regardless of the terms of renewal.
Face-Amount Certificates
These certificates are subject to the OID rules. They are a form of endowment contracts issued by insurance or investment companies for either a lump-sum payment or periodic payments, with the face amount becoming payable on the maturity date of the certificate.
In general, the difference between the face amount and the amount you paid for the contract is OID. You must include a part of the OID in your income over the term of the certificate.
The issuer must give you a statement on Form 1099-OID indicating the amount you must include in your income each year.
Inflation-Indexed Debt Instruments
If you hold an inflation-indexed debt instrument (other than a Series I U.S. savings bond), you must report as OID any increase in the inflation-adjusted principal amount of the instrument that occurs while you held the instrument during the year. In general, an inflation-indexed debt instrument is a debt instrument on which the payments are adjusted for inflation and deflation (such as Treasury Inflation-Protected Securities). You should receive Form 1099-OID from the payer showing the amount you must report as OID and any qualified stated interest paid to you during the year. For more information, see Pub. 1212.
Stripped Bonds and Coupons
If you strip one or more coupons from a bond and sell the bond or the coupons, the bond and coupons are treated as separate debt instruments issued with OID.
The holder of a stripped bond has the right to receive the principal (redemption price) payment. The holder of a stripped coupon has the right to receive interest on the bond.
Stripped bonds and stripped coupons include:
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Zero coupon instruments available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation and the Financing Corporation; and
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Instruments backed by U.S. Treasury securities that represent ownership interests in those securities, such as obligations backed by U.S. Treasury bonds offered primarily by brokerage firms.
Seller.
If you strip coupons from a bond and sell the bond or coupons, include in income the interest that accrued while you held the bond before the date of sale, to the extent you did not previously include this interest in your income. For an obligation acquired after October 22, 1986, you also must include the market discount that accrued before the date of sale of the stripped bond (or coupon) to the extent you did not previously include this discount in your income.
Add the interest and market discount that you include in income to the basis of the bond and coupons. Allocate this adjusted basis between the items you keep and the items you sell, based on the fair market value of the items. The difference between the sale price of the bond (or coupon) and the allocated basis of the bond (or coupon) is your gain or loss from the sale.
Treat any item you keep as an OID bond originally issued and bought by you on the sale date of the other items. If you keep the bond, treat the amount of the redemption price of the bond that is more than the basis of the bond as OID. If you keep the coupons, treat the amount payable on the coupons that is more than the basis of the coupons as OID.
Buyer.
If you buy a stripped bond or stripped coupon, treat it as if it were originally issued on the date you buy it. If you buy a stripped bond, treat as OID any excess of the stated redemption price at maturity over your purchase price. If you buy a stripped coupon, treat as OID any excess of the amount payable on the due date of the coupon over your purchase price.
Figuring OID.
The rules for figuring OID on stripped bonds and stripped coupons depend on the date the debt instruments were purchased, not the date issued.
You must refigure OID shown on the Form 1099-OID you receive for a stripped bond or coupon. See Pub. 1212 for information about figuring the correct amount of OID on these instruments. Owners of stripped bonds and coupons should not rely on the OID shown in Section II of the OID tables (available by going to IRS.gov and searching for “OID Tables”) because the amounts listed in Section II for stripped bonds or coupons are figured without reference to the date or price at which you acquired them.
Stripped inflation-indexed debt instruments.
OID on stripped inflation-indexed debt instruments is figured under the discount bond method. This method is described in Regulations section 1.1275-7(e).
Stripped tax-exempt obligations.
You do not have to pay tax on OID on any stripped tax-exempt bond or coupon you bought before June 11, 1987. However, if you acquired it after October 22, 1986, you must accrue OID on it to determine its basis when you dispose of it. See Original issue discount (OID) on debt instruments, later.
You may have to pay tax on part of the OID on stripped tax-exempt bonds or coupons that you bought after June 10, 1987. See Pub. 1212 for information on figuring the taxable part.
Using the guidance
Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.
Sources and further reading
- Publication 550 (2025), Investment Income and Expenses: Investment Income — Discount on Debt Instruments — Original Issue Discount (OID) — Internal Revenue Service; 2025 edition.
The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.