Market Discount

Description and Definition of Market Discount

The difference between what you pay for a bond and its higher face value, attributable to rising interest rates. Bonds are sold for less than their face value when rising interest rates make their stated interest rate less competitive. If you buy a bond in the secondary market the market discount is the face value of the bond less the sum of the amount you paid for the bond and the amount of accumulated original issue discount (OID) from the date of issue that represented interest to any earlier holders. The tax treatment varies depending on whether the bond is taxable or tax-free and whether you redeem it at maturity or sell it before that time. Generally, on a sale, gain on the bond is taxed as ordinary income to the extent of the discount.

Resources

See Also

Further Reading

• Market Discount in the West's Tax Law Dictionary
• Market Discount in “A Dictionary of Taxation”