Three years ago, Mr. Lewis paid $40,000 for a newly issued corporate bond with a $50,000 stated redemption value. This year, he sold the bond for $43,900. Through date of sale, Mr. Lewis recognized $940 of the original issue discount (OID) as accrued interest income. Compute his gain or loss on sale.

Question

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Mr. Lewis's basis in the bond is the original purchase price plus the OID recognized as income, totaling $40,000 + $940 = $40,940. Selling the bond for $43,900 results in a gain of $43,900 - $40,940 = $2,960. Since the bond was held for more than one year, the gain is considered a long-term capital gain.

Three Years Ago, Mr