If you purchased a 6% bond at par value and sold it 12 months plus 1 day later for $1100, the taxable income you would have realized over the holding period is

Question

Quizplus · Accepted Answer

Purchasing a bond at par value and selling it later for a higher price results in a capital gain. The $60 represents the interest income (6% of the par value, assuming a $1000 par value bond), which is taxed as ordinary income. The additional $100 is the difference between the sale price ($1100) and the purchase price ($1000), which is a capital gain. Since the bond was held for more than 12 months (12 months plus 1 day), the capital gain is considered long-term.

If You Purchased a 6% Bond at Par Value and Sold