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My understanding is that if I pay tax on an OID one year, and the bond in question gets sold in a subsequent year, I get to adjust my basis up by the amount of the OID. Right?

It's better than nothing, but it's a bit of a bummer to pay the first tax at my marginal rate and then get the later benefit at the cap gains rate. Oh, well.

Second question: If I paid tax on an OID in a previous year and the issue was a convertible bond, and then the bond is converted to stock and the stock is sold, can I still use the OID to increase my basis for the stock sale?


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