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I recently talked to a broker about buying some tax-exempt bonds. All of his inventory consisted of bonds with original issue discount. I had without realizing it bought OID bonds in the past and got stuck with a 1099 OID at tax time. As I understand it, these bonds are issued at a discount to the original buyer and the discount is amortized as taxable income over the life of the bond. It seems to me that since the original buyer has pocketed the discount, when the bonds are sold they should be discounted below market to reflect the buyers liability for the taxable portion. Maybe I'm missing something here. If anyone has any insights I would appreciate information. Thanks
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