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mectecinc,

You wrote, If you buy a bond on the open market at a discount to its $1000 par value issue price (for say $900), the bond will ultimately mature at $1000 or could be called for $1000. That $100 "appreciation" is treated as interest not capital gain in bond tax accounting.

I don't believe this is generally true. Certainly not for a taxable bond with a market discount in a taxable account. I do know you can also amortize market bond premiums to reduce your effective income, but I don't think this generally applies to discounts.

Of course I don't think I've ever held any individual bonds outside of my TIRA or 401(k), so I've never had to deal with the tax treatment myself. Other regulars on this board might correct me.

I have held trust preferred stocks that paid interest in my taxable accounts. (The trusts held bonds and distributed interest payments to the preferred shareholders.) Those shares were all purchased at a discount and eventually called at par. The discount was treated as a capital gain. I'm not sure my situation differs materially from the one in your quote above.

- Joel
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