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Form 1040nr Software

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Form 1040nr Software

Form 1040nr software Publication 1212 - Main Content Table of Contents Definitions Debt Instruments on the OID List Debt Instruments Not on the OID List Information for Brokers and Other MiddlemenShort-Term Obligations Redeemed at Maturity Long-Term Debt Instruments Certificates of Deposit Bearer Bonds and Coupons Backup Withholding Information for Owners of OID Debt InstrumentsExceptions. Form 1040nr software Adjustment for premium. Form 1040nr software Adjustment for acquisition premium. Form 1040nr software Adjustment for market discount. Form 1040nr software Form 1099-OID How To Report OID Figuring OID on Long-Term Debt Instruments Figuring OID on Stripped Bonds and Coupons How To Get Tax HelpLow Income Taxpayer Clinics Definitions The following terms are used throughout this publication. Form 1040nr software “Original issue discount” is defined first. Form 1040nr software The other terms are listed alphabetically. Form 1040nr software Original issue discount (OID). Form 1040nr software   OID is a form of interest. Form 1040nr software It is the excess of a debt instrument's stated redemption price at maturity over its issue price (acquisition price for a stripped bond or coupon). Form 1040nr software Zero coupon bonds and debt instruments that pay no stated interest until maturity are examples of debt instruments that have OID. Form 1040nr software Accrual period. Form 1040nr software   An accrual period is an interval of time used to measure OID. Form 1040nr software The length of an accrual period can be 6 months, a year, or some other period, depending on when the debt instrument was issued. Form 1040nr software Acquisition premium. Form 1040nr software   Acquisition premium is the excess of a debt instrument's adjusted basis immediately after purchase, including purchase at original issue, over the debt instrument's adjusted issue price at that time. Form 1040nr software A debt instrument does not have acquisition premium, however, if the debt instrument was purchased at a premium. Form 1040nr software See Premium, later. Form 1040nr software Adjusted issue price. Form 1040nr software   The adjusted issue price of a debt instrument at the beginning of an accrual period is used to figure the OID allocable to that period. Form 1040nr software In general, the adjusted issue price at the beginning of the debt instrument's first accrual period is its issue price. Form 1040nr software The adjusted issue price at the beginning of any subsequent accrual period is the sum of the issue price and all the OID includible in income before that accrual period minus any payment previously made on the debt instrument, other than a payment of qualified stated interest. Form 1040nr software Debt instrument. Form 1040nr software   The term “debt instrument” means any instrument or contractual arrangement that constitutes indebtedness under general principles of federal income tax law (including, for example, a bond, debenture, note, certificate, or other evidence of indebtedness). Form 1040nr software It generally does not include an annuity contract. Form 1040nr software Issue price. Form 1040nr software   For debt instruments listed in Section I-A and Section I-B, the issue price generally is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of these instruments was sold. Form 1040nr software Market discount. Form 1040nr software   Market discount arises when a debt instrument purchased in the secondary market has decreased in value since its issue date, generally because of an increase in interest rates. Form 1040nr software An OID debt instrument has market discount if your adjusted basis in the debt instrument immediately after you acquired it (usually its purchase price) was less than the debt instrument's issue price plus the total OID that accrued before you acquired it. Form 1040nr software The market discount is the difference between the issue price plus accrued OID and your adjusted basis. Form 1040nr software Premium. Form 1040nr software   A debt instrument is purchased at a premium if its adjusted basis immediately after purchase is greater than the total of all amounts payable on the debt instrument after the purchase date, other than qualified stated interest. Form 1040nr software The premium is the excess of the adjusted basis over the payable amounts. Form 1040nr software See Publication 550 for information on the tax treatment of bond premium. Form 1040nr software Qualified stated interest. Form 1040nr software   In general, qualified stated interest is stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually over the term of the debt instrument at a single fixed rate. Form 1040nr software Stated redemption price at maturity. Form 1040nr software   A debt instrument's stated redemption price at maturity is the sum of all amounts (principal and interest) payable on the debt instrument other than qualified stated interest. Form 1040nr software Yield to maturity (YTM). Form 1040nr software   In general, the YTM is the discount rate that, when used in figuring the present value of all principal and interest payments, produces an amount equal to the issue price of the debt instrument. Form 1040nr software The YTM is generally shown on the face of the debt instrument or in the literature you receive from your broker. Form 1040nr software If you do not have this information, consult your broker, tax advisor, or the issuer. Form 1040nr software Debt Instruments on the OID List The OID list on the IRS website can be used by brokers and other middlemen to prepare information returns. Form 1040nr software If you own a listed debt instrument, you generally should not rely on the information in the OID list to determine (or compare) the OID to be reported on your tax return. Form 1040nr software The OID amounts listed are figured without reference to the price or date at which you acquired the debt instrument. Form 1040nr software For information about determining the OID to be reported on your tax return, see the instructions for figuring OID under Information for Owners of OID Debt Instruments, later. Form 1040nr software The following discussions explain what information is contained in each section of the list. Form 1040nr software Section I. Form 1040nr software   This section contains publicly offered, long-term debt instruments. Form 1040nr software Section I-A: Corporate Debt Instruments Issued Before 1985. Form 1040nr software Section I-B: Corporate Debt Instruments Issued After 1984. Form 1040nr software Section I-C: Inflation-Indexed Debt Instruments. Form 1040nr software For each publicly offered debt instrument in Section I, the list contains the following information. Form 1040nr software The name of the issuer. Form 1040nr software The Committee on Uniform Security Identification Procedures (CUSIP) number. Form 1040nr software The issue date. Form 1040nr software The maturity date. Form 1040nr software The issue price expressed as a percent of principal or of stated redemption price at maturity. Form 1040nr software The annual stated or coupon interest rate. Form 1040nr software (This rate is shown as 0. Form 1040nr software 00 if no annual interest payments are provided. Form 1040nr software ) The yield to maturity will be added to Section I-B for bonds issued after December 31, 2006. Form 1040nr software The total OID accrued up to January 1 of a calendar year. Form 1040nr software (This information is not available for every instrument. Form 1040nr software ) For long-term debt instruments issued after July 1, 1982, the daily OID for the accrual periods falling in a calendar year and a subsequent year. Form 1040nr software The total OID per $1,000 of principal or maturity value for a calendar year and a subsequent year. Form 1040nr software Section II. Form 1040nr software   This section contains stripped coupons and principal components of U. Form 1040nr software S. Form 1040nr software Treasury and Government-Sponsored Enterprise debt instruments. Form 1040nr software These stripped components are available through the Department of the Treasury's Separate Trading of Registered Interest and Principal of Securities (STRIPS) program and government-sponsored enterprises such as the Resolution Funding Corporation. Form 1040nr software This section also includes debt instruments backed by U. Form 1040nr software S. Form 1040nr software Treasury securities that represent ownership interests in those securities. Form 1040nr software   The obligations listed in Section II are arranged by maturity date. Form 1040nr software The amounts listed are the total OID for a calendar year per $1,000 of redemption price. Form 1040nr software Section III. Form 1040nr software   This section contains short-term discount obligations. Form 1040nr software Section III-A: Short-Term U. Form 1040nr software S. Form 1040nr software Treasury Bills. Form 1040nr software Section III-B: Federal Home Loan Banks. Form 1040nr software Section III-C: Federal National Mortgage Association. Form 1040nr software Section III-D: Federal Farm Credit Banks. Form 1040nr software Section III-E: Federal Home Loan Mortgage Corporation. Form 1040nr software Section III-F: Federal Agricultural Mortgage Corporation. Form 1040nr software    Information that supplements Section III-A is available on the Internet at http://www. Form 1040nr software treasurydirect. Form 1040nr software gov/tdhome. Form 1040nr software htm. Form 1040nr software   The short-term obligations listed in this section are arranged by maturity date. Form 1040nr software For each obligation, the list contains the CUSIP number, maturity date, issue date, issue price (expressed as a percent of principal), and discount to be reported as interest for a calendar year per $1,000 of redemption price. Form 1040nr software Brokers and other middlemen should rely on the issue price information in Section III only if they are unable to determine the price actually paid by the owner. Form 1040nr software Debt Instruments Not on the OID List The list of debt instruments discussed earlier does not contain the following items. Form 1040nr software U. Form 1040nr software S. Form 1040nr software savings bonds. Form 1040nr software Certificates of deposit and other face-amount certificates issued at a discount, including syndicated certificates of deposit. Form 1040nr software Obligations issued by tax-exempt organizations. Form 1040nr software OID debt instruments that matured or were entirely called by the issuer before the tables were posted on the IRS website. Form 1040nr software Mortgage-backed securities and mortgage participation certificates. Form 1040nr software Long-term OID debt instruments issued before May 28, 1969. Form 1040nr software Short-term obligations, other than the obligations listed in Section III. Form 1040nr software Debt instruments issued at a discount by states or their political subdivisions. Form 1040nr software REMIC regular interests and CDOs. Form 1040nr software Commercial paper and banker's acceptances issued at a discount. Form 1040nr software Obligations issued at a discount by individuals. Form 1040nr software Foreign obligations not traded in the United States and obligations not issued in the United States. Form 1040nr software Information for Brokers and Other Middlemen The following discussions contain specific instructions for brokers and middlemen who hold or redeem a debt instrument for the owner. Form 1040nr software In general, you must file a Form 1099 for the debt instrument if the interest or OID to be included in the owner's income for a calendar year totals $10 or more. Form 1040nr software You also must file a Form 1099 if you were required to deduct and withhold tax, even if the interest or OID is less than $10. Form 1040nr software See Backup Withholding, later. Form 1040nr software If you must file a Form 1099, furnish a copy to the owner of the debt instrument by January 31 in the year it is due. Form 1040nr software File all your Forms 1099 with the IRS, accompanied by Form 1096, by February 28 in the year it is due (March 31 if you file electronically). Form 1040nr software Electronic payee statements. Form 1040nr software   You can issue Form 1099-OID electronically with the consent of the recipient. Form 1040nr software More information. Form 1040nr software   For more information, including penalties for failure to file (or furnish) required information returns or statements, see the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for the appropriate calendar year. Form 1040nr software Short-Term Obligations Redeemed at Maturity If you redeem a short-term discount obligation for the owner at maturity, you must report the discount as interest on Form 1099-INT. Form 1040nr software To figure the discount, use the purchase price shown on the owner's copy of the purchase confirmation receipt or similar record, or the price shown in your transaction records. Form 1040nr software If you sell the obligation for the owner before maturity, you must file Form 1099-B to reflect the gross proceeds to the seller. Form 1040nr software Do not report the accrued discount to the date of sale on either Form 1099-INT or Form 1099-OID. Form 1040nr software If the owner's purchase price cannot be determined, figure the discount as if the owner had purchased the obligation at its original issue price. Form 1040nr software A special rule is used to determine the original issue price for information reporting on U. Form 1040nr software S. Form 1040nr software Treasury bills (T-bills) listed in Section III-A. Form 1040nr software Under this rule, you treat as the original issue price of the T-bill the noncompetitive (weighted average of accepted auction bids) discount price for the longest-maturity T-bill maturing on the same date as the T-bill being redeemed. Form 1040nr software This noncompetitive discount price is the issue price (expressed as a percent of principal) shown in Section III-A. Form 1040nr software A similar rule is used to figure the discount on short-term discount obligations issued by the organizations listed in Section III-B through Section III-F. Form 1040nr software Example 1. Form 1040nr software There are 13-week and 26-week T-bills maturing on the same date as the T-bill being redeemed. Form 1040nr software The price actually paid by the owner cannot be established by owner or middleman records. Form 1040nr software You treat as the issue price of the T-bill the noncompetitive discount price (expressed as a percent of principal) shown in Section III-A for a 26-week bill maturing on the same date as the T-bill redeemed. Form 1040nr software The interest you report on Form 1099-INT is the OID (per $1,000 of principal) shown in Section III-A for that obligation. Form 1040nr software Long-Term Debt Instruments If you hold a long-term OID debt instrument as a nominee for the true owner, you generally must file Form 1099-OID. Form 1040nr software For this purpose, you can rely on Section I of the OID list to determine the following information. Form 1040nr software Whether a debt instrument has OID. Form 1040nr software The OID to be reported on the Form 1099-OID. Form 1040nr software In general, you must report OID on publicly offered, long-term debt instruments listed in Section I. Form 1040nr software You also can report OID on other long-term debt instruments. Form 1040nr software Form 1099-OID. Form 1040nr software   On Form 1099-OID for a calendar year show the following information. Form 1040nr software Box 1. Form 1040nr software The OID for the actual dates the owner held the debt instruments during a calendar year. Form 1040nr software To determine this amount, see Figuring OID, next. Form 1040nr software Box 2. Form 1040nr software The qualified stated interest paid or credited during the calendar year. Form 1040nr software Interest reported here is not reported on Form 1099-INT. Form 1040nr software The qualified stated interest on Treasury inflation-protected securities may be reported on Form 1099-INT in box 3 instead. Form 1040nr software Box 3. Form 1040nr software Any interest or principal forfeited because of an early withdrawal that the owner can deduct from gross income. Form 1040nr software Do not reduce the amounts in boxes 1 and 2 by the forfeiture. Form 1040nr software Box 4. Form 1040nr software Any backup withholding for this debt instrument. Form 1040nr software Box 7. Form 1040nr software The CUSIP number, if any. Form 1040nr software If there is no CUSIP number, give a description of the debt instrument, including the abbreviation for the stock exchange, the abbreviation used by the stock exchange for the issuer, the coupon rate, and the year of maturity (for example, NYSE XYZ 12. Form 1040nr software 50 2006). Form 1040nr software If the issuer of the debt instrument is other than the payer, show the name of the issuer in this box. Form 1040nr software Box 8. Form 1040nr software The OID on a U. Form 1040nr software S. Form 1040nr software Treasury obligation for the part of the year the owner held the debt instrument. Form 1040nr software Box 9. Form 1040nr software Investment expenses passed on to holders of a single-class REMIC. Form 1040nr software Boxes 10-12. Form 1040nr software Use to report any state income tax withheld for this debt instrument. Form 1040nr software Figuring OID. Form 1040nr software   You can determine the OID on a long-term debt instrument by using either of the following. Form 1040nr software Section I of the OID list. Form 1040nr software The income tax regulations. Form 1040nr software Using Section I. Form 1040nr software   If the owner held the debt instrument for the entire calendar year, report the OID shown in Section I for the calendar year. Form 1040nr software Because OID is listed for each $1,000 of stated redemption price at maturity, you must adjust the listed amount to reflect the debt instrument's actual stated redemption price at maturity. Form 1040nr software For example, if the debt instrument's stated redemption price at maturity is $500, report one-half the listed OID. Form 1040nr software   If the owner held the debt instrument for less than the entire calendar year, figure the OID to report as follows. Form 1040nr software Look up the daily OID for the first accrual period in the calendar year during which the owner held the debt instrument. Form 1040nr software Multiply the daily OID by the number of days the owner held the debt instrument during that accrual period. Form 1040nr software Repeat steps (1) and (2) for any remaining accrual periods for the year during which the owner held the debt instrument. Form 1040nr software Add the results in steps (2) and (3) to determine the owner's OID per $1,000 of stated redemption price at maturity. Form 1040nr software If necessary, adjust the OID in (4) to reflect the debt instrument's stated redemption price at maturity. Form 1040nr software Report the result on Form 1099-OID in box 1. Form 1040nr software Using the income tax regulations. Form 1040nr software   Instead of using Section I to figure OID, you can use the regulations under sections 1272 through 1275 of the Internal Revenue Code. Form 1040nr software For example, under the regulations, you can use monthly accrual periods in figuring OID for a debt instrument issued after April 3, 1994, that provides for monthly payments. Form 1040nr software (If you use Section I-B, the OID is figured using 6-month accrual periods. Form 1040nr software )   For a general explanation of the rules for figuring OID under the regulations, see Figuring OID on Long-Term Debt Instruments under Information for Owners of OID Debt Instruments, later. Form 1040nr software Certificates of Deposit If you hold a bank certificate of deposit (CD) as a nominee, you must determine whether the CD has OID and any OID includible in the income of the owner. Form 1040nr software You must file an information return showing the reportable interest and OID, if any, on the CD. Form 1040nr software These rules apply whether or not you sold the CD to the owner. Form 1040nr software Report OID on a CD in the same way as OID on other debt instruments. Form 1040nr software See Short-Term Obligations Redeemed at Maturity and Long-Term Debt Instruments, earlier. Form 1040nr software Bearer Bonds and Coupons If a coupon from a bearer bond is presented to you for collection before the bond matures, you generally must report the interest on Form 1099-INT. Form 1040nr software However, do not report the interest if either of the following apply. Form 1040nr software You hold the bond as a nominee for the true owner. Form 1040nr software The payee is a foreign person. Form 1040nr software See Payments to foreign person under Backup Withholding, later. Form 1040nr software Because you cannot assume the presenter of the coupon also owns the bond, you should not report OID on the bond on Form 1099-OID. Form 1040nr software The coupon may have been “stripped” (separated) from the bond and separately purchased. Form 1040nr software However, if a long-term bearer bond on the OID list is presented to you for redemption upon call or maturity, you should prepare a Form 1099-OID showing the OID for that calendar year, as well as any coupon interest payments collected at the time of redemption. Form 1040nr software Backup Withholding If you report OID on Form 1099-OID or interest on Form 1099-INT for a calendar year, you may be required to apply backup withholding to the reportable payment at a rate of 28%. Form 1040nr software The backup withholding is deducted at the time a cash payment is made. Form 1040nr software See Pub. Form 1040nr software 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), for more information. Form 1040nr software Backup withholding generally applies in the following situations. Form 1040nr software The payee does not give you a taxpayer identification number (TIN). Form 1040nr software The IRS notifies you that the payee gave an incorrect TIN. Form 1040nr software The IRS notifies you that the payee is subject to backup withholding due to payee underreporting. Form 1040nr software For debt instruments acquired after 1983: The payee does not certify, under penalties of perjury, that he or she is not subject to backup withholding under (3), or The payee does not certify, under penalties of perjury, that the TIN given is correct. Form 1040nr software However, for short-term discount obligations (other than government obligations), bearer bonds and coupons, and U. Form 1040nr software S. Form 1040nr software savings bonds, backup withholding applies only if the payee does not give you a TIN or gives you an obviously incorrect number for a TIN. Form 1040nr software Short-term obligations. Form 1040nr software   Backup withholding applies to OID on a short-term obligation only when the OID is paid at maturity. Form 1040nr software However, backup withholding applies to any interest payable before maturity when the interest is paid or credited. Form 1040nr software   If the owner of a short-term obligation at maturity is not the original owner and can establish the purchase price of the obligation, the amount subject to backup withholding must be determined by treating the purchase price as the issue price. Form 1040nr software However, you can choose to disregard that price if it would require significant manual intervention in the computer or recordkeeping system used for the obligation. Form 1040nr software If the purchase price of a listed obligation is not established or is disregarded, you must use the issue price shown in Section III. Form 1040nr software Long-term obligations. Form 1040nr software   If no cash payments are made on a long-term obligation before maturity, backup withholding applies only at maturity. Form 1040nr software The amount subject to backup withholding is the OID includible in the owner's gross income for the calendar year when the obligation matures. Form 1040nr software The amount to be withheld is limited to the cash paid. Form 1040nr software Registered long-term obligations with cash payments. Form 1040nr software   If a registered long-term obligation has cash payments before maturity, backup withholding applies when a cash payment is made. Form 1040nr software The amount subject to backup withholding is the total of the qualified stated interest (defined earlier under Definitions) and OID includible in the owner's gross income for the calendar year when the payment is made. Form 1040nr software If more than one cash payment is made during the year, the OID subject to withholding for the year must be allocated among the expected cash payments in the ratio that each bears to the total of the expected cash payments. Form 1040nr software For any payment, the required withholding is limited to the cash paid. Form 1040nr software Payee not the original owner. Form 1040nr software   If the payee is not the original owner of the obligation, the OID subject to backup withholding is the OID includible in the gross income of all owners during the calendar year (without regard to any amount paid by the new owner at the time of transfer). Form 1040nr software The amount subject to backup withholding at maturity of a listed obligation must be determined using the issue price shown in Section I. Form 1040nr software Bearer long-term obligations with cash payments. Form 1040nr software   If a bearer long-term obligation has cash payments before maturity, backup withholding applies when the cash payments are made. Form 1040nr software For payments before maturity, the amount subject to withholding is the qualified stated interest (defined earlier under Definitions) includible in the owner's gross income for the calendar year. Form 1040nr software For a payment at maturity, the amount subject to withholding is only the total of any qualified stated interest paid at maturity and the OID includible in the owner's gross income for the calendar year when the obligation matures. Form 1040nr software The required withholding at maturity is limited to the cash paid. Form 1040nr software Sales and redemptions. Form 1040nr software   If you report the gross proceeds from a sale, exchange, or redemption of a debt instrument on Form 1099-B for a calendar year, you may be required to withhold 28% of the amount reported. Form 1040nr software Backup withholding applies in the following situations. Form 1040nr software The payee does not give you a TIN. Form 1040nr software The IRS notifies you that the payee gave an incorrect TIN. Form 1040nr software For debt instruments held in an account opened after 1983, the payee does not certify, under penalties of perjury, that the TIN given is correct. Form 1040nr software Payments outside the United States to U. Form 1040nr software S. Form 1040nr software person. Form 1040nr software   The requirements for backup withholding and information reporting apply to payments of OID and interest made outside the United States to a U. Form 1040nr software S. Form 1040nr software person, a controlled foreign corporation, or a foreign person at least 50% of whose income for the preceding 3-year period is effectively connected with the conduct of a U. Form 1040nr software S. Form 1040nr software trade or business. Form 1040nr software Payments to foreign person. Form 1040nr software   The following discussions explain the rules for backup withholding and information reporting on payments to foreign persons. Form 1040nr software U. Form 1040nr software S. Form 1040nr software -source amount. Form 1040nr software   Backup withholding and information reporting are not required for payments of U. Form 1040nr software S. Form 1040nr software -source OID, interest, or proceeds from a sale or redemption of an OID instrument if the payee has given you proof (generally the appropriate Form W-8 or an acceptable substitute) that the payee is a foreign person. Form 1040nr software A U. Form 1040nr software S. Form 1040nr software resident is not a foreign person. Form 1040nr software For proof of the payee's foreign status, you can rely on the appropriate Form W-8 or on documentary evidence for payments made outside the United States to an offshore account or, in case of broker proceeds, a sale effected outside the United States. Form 1040nr software Receipt of the appropriate Form W-8 does not relieve you from information reporting and backup withholding if you actually know the payee is a U. Form 1040nr software S. Form 1040nr software person. Form 1040nr software   For information about the 28% withholding tax that may apply to payments of U. Form 1040nr software S. Form 1040nr software -source OID or interest to foreign persons, see Publication 515. Form 1040nr software Foreign-source amount. Form 1040nr software   Backup withholding and information reporting are not required for payments of foreign-source OID and interest made outside the United States. Form 1040nr software However, if the payments are made inside the United States, the requirements for backup withholding and information reporting will apply unless the payee has given you the appropriate Form W-8 or acceptable substitute as proof that the payee is a foreign person. Form 1040nr software More information. Form 1040nr software   For more information about backup withholding and information reporting on foreign-source amounts or payments to foreign persons, see Regulations section 1. Form 1040nr software 6049-5. Form 1040nr software Information for Owners of OID Debt Instruments This section is for persons who prepare their own tax returns. Form 1040nr software It discusses the income tax rules for figuring and reporting OID on long-term debt instruments. Form 1040nr software It also includes a similar discussion for stripped bonds and coupons, such as zero coupon bonds available through the Department of the Treasury's STRIPS program and government-sponsored enterprises such as the Resolution Funding Corporation. Form 1040nr software However, the information provided does not cover every situation. Form 1040nr software More information can be found in the regulations under sections 1271 through 1275 of the Internal Revenue Code. Form 1040nr software Including OID in income. Form 1040nr software   Generally, you include OID in income as it accrues each year, whether or not you receive any payments from the debt instrument issuer. Form 1040nr software Exceptions. Form 1040nr software   The rules for including OID in income as it accrues generally do not apply to the following debt instruments. Form 1040nr software U. Form 1040nr software S. Form 1040nr software savings bonds. Form 1040nr software Tax-exempt obligations. Form 1040nr software (However, see Tax-Exempt Bonds and Coupons, later. Form 1040nr software ) Obligations issued by individuals before March 2, 1984. Form 1040nr software Loans of $10,000 or less between individuals who are not in the business of lending money. Form 1040nr software (The dollar limit includes outstanding prior loans by the lender to the borrower. Form 1040nr software ) This exception does not apply if a principal purpose of the loan is to avoid any federal tax. Form 1040nr software   See chapter 1 of Publication 550 for information about the rules for these and other types of discounted debt instruments, such as short-term and market discount obligations. Form 1040nr software Publication 550 also discusses rules for holders of REMIC interests and CDOs. Form 1040nr software De minimis rule. Form 1040nr software   You can treat OID as zero if the total OID on a debt instrument is less than one-fourth of 1% (. Form 1040nr software 0025) of the stated redemption price at maturity multiplied by the number of full years from the date of original issue to maturity. Form 1040nr software Debt instruments with de minimis OID are not listed in this publication. Form 1040nr software There are special rules to determine the de minimis amount in the case of debt instruments that provide for more than one payment of principal. Form 1040nr software Also, the de minimis rules generally do not apply to tax-exempt obligations. Form 1040nr software Example 2. Form 1040nr software You bought at issuance a 10-year debt instrument with a stated redemption price at maturity of $1,000, issued at $980 with OID of $20. Form 1040nr software One-fourth of 1% of $1,000 (the stated redemption price) times 10 (the number of full years from the date of original issue to maturity) equals $25. Form 1040nr software Under the de minimis rule, you can treat the OID as zero because the $20 discount is less than $25. Form 1040nr software Example 3. Form 1040nr software Assume the same facts as Example 2, except the debt instrument was issued at $950. Form 1040nr software You must report part of the $50 OID each year because it is more than $25. Form 1040nr software Choice to report all interest as OID. Form 1040nr software   Generally, you can choose to treat all interest on a debt instrument acquired after April 3, 1994, as OID and include it in gross income by using the constant yield method. Form 1040nr software See Constant yield method under Debt Instruments Issued After 1984, later, for more information. Form 1040nr software   For this choice, interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium. Form 1040nr software For more information, see Regulations section 1. Form 1040nr software 1272-3. Form 1040nr software Purchase after date of original issue. Form 1040nr software   A debt instrument you purchased after the date of original issue may have premium, acquisition premium, or market discount. Form 1040nr software If so, the OID reported to you on Form 1099-OID may have to be adjusted. Form 1040nr software For more information, see Showing an OID adjustment under How To Report OID, later. Form 1040nr software The following rules generally do not apply to contingent payment debt instruments. Form 1040nr software Adjustment for premium. Form 1040nr software   If your debt instrument (other than an inflation-indexed debt instrument) has premium, do not report any OID as ordinary income. Form 1040nr software Your adjustment is the total OID shown on your Form 1099-OID. Form 1040nr software Adjustment for acquisition premium. Form 1040nr software   If your debt instrument has acquisition premium, reduce the OID you report. Form 1040nr software Your adjustment is the difference between the OID shown on your Form 1099-OID and the reduced OID amount figured using the rules explained later under Figuring OID on Long-Term Debt Instruments. Form 1040nr software Adjustment for market discount. Form 1040nr software   If your debt instrument has market discount that you choose to include in income currently, increase the OID you report. Form 1040nr software Your adjustment is the accrued market discount for the year. Form 1040nr software See Market Discount Bonds in chapter 1 of Publication 550 for information on how to figure accrued market discount and include it in your income currently and for other information about market discount bonds. Form 1040nr software If you choose to use the constant yield method to figure accrued market discount, also see Figuring OID on Long-Term Debt Instruments, later. Form 1040nr software The constant yield method of figuring accrued OID, explained in those discussions under Constant yield method, is also used to figure accrued market discount. Form 1040nr software For more information concerning premium or market discount on an inflation-indexed debt instrument, see Regulations section 1. Form 1040nr software 1275-7. Form 1040nr software Sale, exchange, or redemption. Form 1040nr software   Generally, you treat your gain or loss from the sale, exchange, or redemption of a discounted debt instrument as a capital gain or loss if you held the debt instrument as a capital asset. Form 1040nr software If you sold the debt instrument through a broker, you should receive Form 1099-B or an equivalent statement from the broker. Form 1040nr software Use the Form 1099-B or other statement and your brokerage statements to complete Form 8949, and Schedule D (Form 1040). Form 1040nr software   Your gain or loss is the difference between the amount you realized on the sale, exchange, or redemption and your basis in the debt instrument. Form 1040nr software Your basis, generally, is your cost increased by the OID you have included in income each year you held it. Form 1040nr software In general, to determine your gain or loss on a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Form 1040nr software   See chapter 4 of Publication 550 for more information about the tax treatment of the sale or redemption of discounted debt instruments. Form 1040nr software Example 4. Form 1040nr software Larry, a calendar year taxpayer, bought a corporate debt instrument at original issue for $86,235. Form 1040nr software 00 on November 1 of Year 1. Form 1040nr software The 15-year debt instrument matures on October 31 of Year 16 at a stated redemption price of $100,000. Form 1040nr software The debt instrument provides for semiannual payments of interest at 10%. Form 1040nr software Assume the debt instrument is a capital asset in Larry's hands. Form 1040nr software The debt instrument has $13,765. Form 1040nr software 00 of OID ($100,000 stated redemption price at maturity minus $86,235. Form 1040nr software 00 issue price). Form 1040nr software Larry sold the debt instrument for $90,000 on November 1 of Year 4. Form 1040nr software Including the OID he will report for the period he held the debt instrument in Year 4, Larry has included $4,556. Form 1040nr software 00 of OID in income and has increased his basis by that amount to $90,791. Form 1040nr software 00. Form 1040nr software Larry has realized a loss of $791. Form 1040nr software 00. Form 1040nr software All of Larry's loss is capital loss. Form 1040nr software Form 1099-OID The issuer of the debt instrument (or your broker, if you purchased or held the debt instrument through a broker) should give you a copy of Form 1099-OID or a similar statement if the accrued OID for the calendar year is $10 or more and the term of the debt instrument is more than 1 year. Form 1040nr software Form 1099-OID shows all OID income in box 1 except OID on a U. Form 1040nr software S. Form 1040nr software Treasury obligation, which is shown in box 8. Form 1040nr software It also shows, in box 2, any qualified stated interest you must include in income. Form 1040nr software (However, any qualified stated interest on Treasury inflation-protected securities can be reported on Form 1099-INT in box 3. Form 1040nr software ) A copy of Form 1099-OID will be sent to the IRS. Form 1040nr software Do not attach your copy to your tax return. Form 1040nr software Keep it for your records. Form 1040nr software If you are required to file a tax return and you receive Form 1099-OID showing taxable amounts, you must report these amounts on your return. Form 1040nr software A 20% accuracy-related penalty may be charged for underpayment of tax due to either negligence or disregard of rules and regulations or substantial understatement of tax. Form 1040nr software Form 1099-OID not received. Form 1040nr software   If you held an OID debt instrument for a calendar year but did not receive a Form 1099-OID, refer to the discussions under Figuring OID on Long-Term Debt Instruments, later, for information on the OID you must report. Form 1040nr software Refiguring OID. Form 1040nr software   You must refigure the OID shown on Form 1099-OID, in box 1 or box 8, to determine the proper amount to include in income if one of the following applies. Form 1040nr software You bought the debt instrument at a premium or at an acquisition premium. Form 1040nr software The debt instrument is a stripped bond or coupon (including zero coupon bonds backed by U. Form 1040nr software S. Form 1040nr software Treasury securities). Form 1040nr software The debt instrument is a contingent payment or inflation-indexed debt instrument. Form 1040nr software See the discussions under Figuring OID on Long-Term Debt Instruments or Figuring OID on Stripped Bonds and Coupons, later, for the specific computations. Form 1040nr software Refiguring interest. Form 1040nr software   If you disposed of a debt instrument or acquired it from another holder between interest dates, see the discussion under Bonds Sold Between Interest Dates in chapter 1 of Publication 550 for information about refiguring the interest shown on Form 1099-OID in box 2. Form 1040nr software Nominee. Form 1040nr software   If you are the holder of an OID debt instrument and you receive a Form 1099-OID that shows your taxpayer identification number and includes amounts belonging to another person, you are considered a “nominee. Form 1040nr software ” You must file another Form 1099-OID for each actual owner, showing the OID for the owner. Form 1040nr software Show the owner of the debt instrument as the “recipient” and you as the “payer. Form 1040nr software ”   Complete Form 1099-OID and Form 1096 and file the forms with the Internal Revenue Service Center for your area. Form 1040nr software You must also give a copy of the Form 1099-OID to the actual owner. Form 1040nr software However, you are not required to file a nominee return to show amounts belonging to your spouse. Form 1040nr software See the Form 1099 instructions for more information. Form 1040nr software   When preparing your tax return, follow the instructions under Showing an OID adjustment in the next discussion. Form 1040nr software How To Report OID Generally, you report your taxable interest and OID income on the interest line of Form 1040EZ, Form 1040A, or Form 1040. Form 1040nr software Form 1040 or Form 1040A required. Form 1040nr software   You must use Form 1040 or Form 1040A (you cannot use Form 1040EZ) under either of the following conditions. Form 1040nr software You received a Form 1099-OID as a nominee for the actual owner. Form 1040nr software Your total interest and OID income for the year was more than $1,500. Form 1040nr software Form 1040 required. Form 1040nr software   You must use Form 1040 (you cannot use Form 1040A or Form 1040EZ) if you are reporting more or less OID than the amount shown on Form 1099-OID, other than because you are a nominee. Form 1040nr software For example, if you paid a premium or an acquisition premium when you purchased the debt instrument, you must use Form 1040 because you will report less OID than shown on Form 1099-OID. Form 1040nr software Also, you must use Form 1040 if you were charged an early withdrawal penalty. Form 1040nr software Where to report. Form 1040nr software   List each payer's name (if a brokerage firm gave you a Form 1099, list the brokerage firm as the payer) and the amount received from each payer on Form 1040A, Schedule B, Part I, line 1, or Form 1040, Schedule B, line 1. Form 1040nr software Include all OID and periodic interest shown on any Form 1099-OID, boxes 1, 2, and 8, you received for the tax year. Form 1040nr software Also include any other OID and interest income for which you did not receive a Form 1099. Form 1040nr software Showing an OID adjustment. Form 1040nr software   If you use Form 1040 to report more or less OID than shown on Form 1099-OID, list the full OID on Schedule B, Part I, line 1, and follow the instructions under 1 or 2, next. Form 1040nr software   If you use Form 1040A to report the OID shown on a Form 1099-OID you received as a nominee for the actual owner, list the full OID on Schedule B, Part I, line 1 and follow the instructions under 1. Form 1040nr software If the OID, as adjusted, is less than the amount shown on Form 1099-OID, show the adjustment as follows. Form 1040nr software Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Form 1040nr software Below the subtotal, write “Nominee Distribution” or “OID Adjustment” and show the OID you are not required to report. Form 1040nr software Subtract that OID from the subtotal and enter the result on line 2. Form 1040nr software If the OID, as adjusted, is more than the amount shown on Form 1099-OID, show the adjustment as follows. Form 1040nr software Under your last entry on line 1, subtotal all interest and OID income listed on line 1. Form 1040nr software Below the subtotal, write “OID Adjustment” and show the additional OID. Form 1040nr software Add that OID to the subtotal and enter the result on line 2. Form 1040nr software Figuring OID on Long-Term Debt Instruments How you figure the OID on a long-term debt instrument depends on the date it was issued. Form 1040nr software It also may depend on the type of the debt instrument. Form 1040nr software There are different rules for each of the following debt instruments. Form 1040nr software Corporate debt instruments issued after 1954 and before May 28, 1969, and government debt instruments issued after 1954 and before July 2, 1982. Form 1040nr software Corporate debt instruments issued after May 27, 1969, and before July 2, 1982. Form 1040nr software Debt instruments issued after July 1, 1982, and before 1985. Form 1040nr software Debt instruments issued after 1984 (other than debt instruments described in (5) and (6)). Form 1040nr software Contingent payment debt instruments issued after August 12, 1996. Form 1040nr software Inflation-indexed debt instruments (including Treasury inflation-protected securities) issued after January 5, 1997. Form 1040nr software Zero coupon bonds. Form 1040nr software   The rules for figuring OID on zero coupon bonds backed by U. Form 1040nr software S. Form 1040nr software Treasury securities are discussed under Figuring OID on Stripped Bonds and Coupons, later. Form 1040nr software Corporate Debt Instruments Issued After 1954 and Before May 28, 1969, and Government Debt Instruments Issued After 1954 and Before July 2, 1982 If you hold these debt instruments as capital assets, you include OID in income only in the year the debt instrument is sold, exchanged, or redeemed, and only if you have a gain. Form 1040nr software The OID, which is taxed as ordinary income, generally equals the following amount. Form 1040nr software   number of full months you held the debt instrument  number of full months from date of original issue to date of maturity X original issue discount The balance of the gain is capital gain. Form 1040nr software If there is a loss on the sale of the debt instrument, the entire loss is a capital loss and no OID is reported. Form 1040nr software Corporate Debt Instruments Issued After May 27, 1969, and Before July 2, 1982 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments. Form 1040nr software For information about showing the correct OID on your tax return, see the discussion under How To Report OID, earlier. Form 1040nr software Your basis in the debt instrument is increased by the OID you include in income. Form 1040nr software Form 1099-OID. Form 1040nr software   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Form 1040nr software However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Form 1040nr software See Reduction for acquisition premium, later. Form 1040nr software If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Form 1040nr software irs. Form 1040nr software gov/pub1212 by clicking the link under Recent Developments. Form 1040nr software Form 1099-OID not received. Form 1040nr software    The OID listed is for each $1,000 of redemption price. Form 1040nr software You must adjust the listed amount if your debt instrument has a different principal amount. Form 1040nr software For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Form 1040nr software   If you held the debt instrument the entire year, use the OID shown in Section I-A for a calendar year. Form 1040nr software (If your debt instrument is not listed in Section I-A, consult the issuer for information about the issue price and the OID that accrued for that year. Form 1040nr software ) If you did not hold the debt instrument the entire year, figure your OID using the following method. Form 1040nr software Divide the OID shown by 12. Form 1040nr software Multiply the result in (1) by the number of complete and partial months (for example, 6½ months) you held the debt instrument during a calendar year. Form 1040nr software This is the OID to include in income unless you paid an acquisition premium. Form 1040nr software The reduction for acquisition premium is discussed next. Form 1040nr software Reduction for acquisition premium. Form 1040nr software   If you bought the debt instrument at an acquisition premium, figure the OID to include in income as follows. Form 1040nr software Divide the total OID on the debt instrument by the number of complete months, and any part of a month, from the date of original issue to the maturity date. Form 1040nr software This is the monthly OID. Form 1040nr software Subtract from your cost the issue price and the accumulated OID from the date of issue to the date of purchase. Form 1040nr software (If the result is zero or less, stop here. Form 1040nr software You did not pay an acquisition premium. Form 1040nr software ) Divide the amount figured in (2) by the number of complete months, and any part of a month, from the date of your purchase to the maturity date. Form 1040nr software Subtract the amount figured in (3) from the amount figured in (1). Form 1040nr software This is the OID to include in income for each month you hold the debt instrument during the year. Form 1040nr software Transfers during the month. Form 1040nr software   If you buy or sell a debt instrument on any day other than the same day of the month as the date of original issue, the ratable monthly portion of OID for the month of sale is divided between the seller and the buyer according to the number of days each held the debt instrument. Form 1040nr software Your holding period for this purpose begins the day you acquire the debt instrument and ends the day before you dispose of it. Form 1040nr software Debt Instruments Issued After July 1, 1982, and Before 1985 If you hold these debt instruments as capital assets, you must include part of the OID in income each year you own the debt instruments and increase your basis by the amount included. Form 1040nr software For information about showing the correct OID on your tax return, see How To Report OID, earlier. Form 1040nr software Form 1099-OID. Form 1040nr software   You should receive a Form 1099-OID showing OID for the part of the year you held the debt instrument. Form 1040nr software However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Form 1040nr software See Constant yield method and the discussions on acquisition premium that follow, later. Form 1040nr software If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-A available at www. Form 1040nr software irs. Form 1040nr software gov/pub1212 by clicking the link under Recent Developments. Form 1040nr software Form 1099-OID not received. Form 1040nr software    The OID listed is for each $1,000 of redemption price. Form 1040nr software You must adjust the listed amount if your debt instrument has a different principal amount. Form 1040nr software For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Form 1040nr software   If you held the debt instrument the entire year, use the OID shown in Section I-A. Form 1040nr software (If your instrument is not listed in Section I-A, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Form 1040nr software ) If you did not hold the debt instrument the entire year, figure your OID using either of the following methods. Form 1040nr software Method 1. Form 1040nr software    Divide the total OID for a calendar year by 365 (366 for leap years). Form 1040nr software Multiply the result in (1) by the number of days you held the debt instrument during that particular year. Form 1040nr software  This computation is an approximation and may result in a slightly higher OID than Method 2. Form 1040nr software Method 2. Form 1040nr software    Look up the daily OID for the first accrual period you held the debt instrument during a calendar year. Form 1040nr software (See Accrual period under Constant yield method, next. Form 1040nr software ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Form 1040nr software If you held the debt instrument for part of both accrual periods, repeat (1) and (2) for the second accrual period. Form 1040nr software Add the results of (2) and (3). Form 1040nr software This is the OID to include in income, unless you paid an acquisition premium. Form 1040nr software (The reduction for acquisition premium is discussed later. Form 1040nr software ) Constant yield method. Form 1040nr software   This discussion shows how to figure OID on debt instruments issued after July 1, 1982, and before 1985, using a constant yield method. Form 1040nr software OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Form 1040nr software   Figure the OID allocable to any accrual period as follows. Form 1040nr software Multiply the adjusted issue price at the beginning of the accrual period by the debt instrument's yield to maturity. Form 1040nr software Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Form 1040nr software Accrual period. Form 1040nr software   An accrual period for any OID debt instrument issued after July 1, 1982, and before 1985 is each 1-year period beginning on the date of the issue of the obligation and each anniversary thereafter, or the shorter period to maturity for the last accrual period. Form 1040nr software Your tax year will usually include parts of two accrual periods. Form 1040nr software Daily OID. Form 1040nr software   The OID for any accrual period is allocated equally to each day in the accrual period. Form 1040nr software You must include in income the sum of the OID amounts for each day you hold the debt instrument during the year. Form 1040nr software If your tax year includes parts of two or more accrual periods, you must include the proper daily OID amounts for each accrual period. Form 1040nr software Figuring daily OID. Form 1040nr software   The daily OID for the initial accrual period is figured using the following formula. Form 1040nr software   (ip × ytm) − qsi     p   ip = issue price ytm = yield to maturity qsi = qualified stated interest p = number of days in accrual period         The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Form 1040nr software Reduction for acquisition premium on debt instruments purchased before July 19, 1984. Form 1040nr software   If you bought the debt instrument at an acquisition premium before July 19, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Form 1040nr software Figure the daily acquisition premium by dividing the total acquisition premium by the number of days in the period beginning on your purchase date and ending on the day before the date of maturity. Form 1040nr software Reduction for acquisition premium on debt instruments purchased after July 18, 1984. Form 1040nr software   If you bought the debt instrument at an acquisition premium after July 18, 1984, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Form 1040nr software However, the method of figuring the daily acquisition premium is different from the method described in the preceding discussion. Form 1040nr software To figure the daily acquisition premium under this method, multiply the daily OID by the following fraction. Form 1040nr software The numerator is the acquisition premium. Form 1040nr software The denominator is the total OID remaining for the debt instrument after your purchase date. Form 1040nr software Section I-A is available at www. Form 1040nr software irs. Form 1040nr software gov/pub1212 and clicking the link under Recent Developments. Form 1040nr software Using Section I-A to figure accumulated OID. Form 1040nr software   If you bought your corporate debt instrument in a calendar year or the subsequent year, you can figure the accumulated OID to the date of purchase by adding the following amounts. Form 1040nr software The amount from the “Total OID to January 1, YYYY” column for your debt instrument. Form 1040nr software The OID from January 1 of a calendar year to the date of purchase, figured as follows. Form 1040nr software Multiply the daily OID for the first accrual period in the calendar year by the number of days from January 1 to the date of purchase, or the end of the accrual period if the debt instrument was purchased in the second or third accrual period. Form 1040nr software Multiply the daily OID for each subsequent accrual period by the number of days in the period to the date of purchase or the end of the accrual period, whichever applies. Form 1040nr software Add the amounts figured in (2a) and (2b). Form 1040nr software Debt Instruments Issued After 1984 If you hold debt instruments issued after 1984, you must report part of the OID in gross income each year that you own the debt instruments. Form 1040nr software You must include the OID in gross income whether or not you hold the debt instrument as a capital asset. Form 1040nr software Your basis in the debt instrument is increased by the OID you include in income. Form 1040nr software For information about showing the correct OID on your tax return, see How To Report OID, earlier. Form 1040nr software Form 1099-OID. Form 1040nr software   You should receive a Form 1099-OID showing OID for the part of a calendar year you held the debt instrument. Form 1040nr software However, if you paid an acquisition premium, you may need to refigure the OID to report on your tax return. Form 1040nr software See Constant yield method and Reduction for acquisition premium, later. Form 1040nr software   You may also need to refigure the OID for a contingent payment or inflation-indexed debt instrument on which the amount reported on Form 1099-OID is inaccurate. Form 1040nr software See Contingent Payment Debt Instruments or Inflation-Indexed Debt Instruments, later. Form 1040nr software If you held an OID debt instrument in a calendar year but did not receive a Form 1099-OID, see Form 1099-OID not received, immediately below, and refer to Section I-B available at www. Form 1040nr software irs. Form 1040nr software gov/pub1212 by clicking the link under Recent Developments. Form 1040nr software Form 1099-OID not received. Form 1040nr software   The OID listed is for each $1,000 of redemption price. Form 1040nr software You must adjust the listed amount if your debt instrument has a different principal amount. Form 1040nr software For example, if you have a debt instrument with a $500 principal amount, use one-half the listed amount to figure your OID. Form 1040nr software   Use the OID shown in Section I-B for a calendar year if you held the debt instrument the entire year. Form 1040nr software (If your debt instrument is not listed in Section I-B, consult the issuer for information about the issue price, the yield to maturity, and the OID that accrued for that year. Form 1040nr software ) If you did not hold the debt instrument the entire year, figure your OID as follows. Form 1040nr software Look up the daily OID for the first accrual period in which you held the debt instrument during a calendar year. Form 1040nr software (See Accrual period under Constant yield method, later. Form 1040nr software ) Multiply the daily OID by the number of days you held the debt instrument during that accrual period. Form 1040nr software Repeat (1) and (2) for any remaining accrual periods in which you held the debt instrument. Form 1040nr software Add the results of (2) and (3). Form 1040nr software This is the OID to include in income for that year, unless you paid an acquisition premium. Form 1040nr software (The reduction for acquisition premium is discussed later. Form 1040nr software ) Tax-exempt bond. Form 1040nr software   If you own a tax-exempt bond, figure your basis in the bond by adding to your cost the OID you would have included in income if the bond had been taxable. Form 1040nr software You need to make this adjustment to determine if you have a gain or loss on a later disposition of the bond. Form 1040nr software In general, use the rules that follow to determine your OID. Form 1040nr software Constant yield method. Form 1040nr software   This discussion shows how to figure OID on debt instruments issued after 1984 using a constant yield method. Form 1040nr software (The special rules that apply to contingent payment debt instruments and inflation-indexed debt instruments are explained later. Form 1040nr software ) OID is allocated over the life of the debt instrument through adjustments to the issue price for each accrual period. Form 1040nr software   Figure the OID allocable to any accrual period as follows. Form 1040nr software Multiply the adjusted issue price at the beginning of the accrual period by a fraction. Form 1040nr software The numerator of the fraction is the debt instrument's yield to maturity and the denominator is the number of accrual periods per year. Form 1040nr software The yield must be stated appropriately taking into account the length of the particular accrual period. Form 1040nr software Subtract from the result in (1) any qualified stated interest allocable to the accrual period. Form 1040nr software Accrual period. Form 1040nr software   For debt instruments issued after 1984 and before April 4, 1994, an accrual period is each 6-month period that ends on the day that corresponds to the stated maturity date of the debt instrument or the date 6 months before that date. Form 1040nr software For example, a debt instrument maturing on March 31 has accrual periods that end on September 30 and March 31 of each calendar year. Form 1040nr software Any short period is included as the first accrual period. Form 1040nr software   For debt instruments issued after April 3, 1994, accrual periods may be of any length and may vary in length over the term of the debt instrument, as long as each accrual period is no longer than 1 year and all payments are made on the first or last day of an accrual period. Form 1040nr software However, the OID listed for these debt instruments in Section I-B has been figured using 6-month accrual periods. Form 1040nr software Daily OID. Form 1040nr software   The OID for any accrual period is allocated equally to each day in the accrual period. Form 1040nr software Figure the amount to include in income by adding the OID for each day you hold the debt instrument during the year. Form 1040nr software Since your tax year will usually include parts of two or more accrual periods, you must include the proper daily OID for each accrual period. Form 1040nr software If your debt instrument has 6-month accrual periods, your tax year will usually include one full 6-month accrual period and parts of two other 6-month periods. Form 1040nr software Figuring daily OID. Form 1040nr software   The daily OID for the initial accrual period is figured using the following formula. Form 1040nr software   (ip × ytm/n) − qsi     p   ip = issue price ytm = yield to maturity n = number of accrual periods in 1 year qsi = qualified stated interest p = number of days in accrual period       The daily OID for subsequent accrual periods is figured the same way except the adjusted issue price at the beginning of each period is used in the formula instead of the issue price. Form 1040nr software Example 5. Form 1040nr software On January 1 of Year 1, you bought a 15-year, 10% debt instrument of A Corporation at original issue for $86,235. Form 1040nr software 17. Form 1040nr software According to the prospectus, the debt instrument matures on December 31 of Year 15 at a stated redemption price of $100,000. Form 1040nr software The yield to maturity is 12%, compounded semiannually. Form 1040nr software The debt instrument provides for qualified stated interest payments of $5,000 on June 30 and December 31 of each calendar year. Form 1040nr software The accrual periods are the 6-month periods ending on each of these dates. Form 1040nr software The number of days for the first accrual period (January 1 through June 30) is 181 days (182 for leap years). Form 1040nr software The daily OID for the first accrual period is figured as follows. Form 1040nr software   ($86,235. Form 1040nr software 17 x . Form 1040nr software 12/2) – $5,000     181 days     = $174. Form 1040nr software 11020 = $. Form 1040nr software 96193   181           The adjusted issue price at the beginning of the second accrual period is the issue price plus the OID previously includible in income ($86,235. Form 1040nr software 17 + $174. Form 1040nr software 11), or $86,409. Form 1040nr software 28. Form 1040nr software The number of days for the second accrual period (July 1 through December 31) is 184 days. Form 1040nr software The daily OID for the second accrual period is figured as follows. Form 1040nr software   ($86,409. Form 1040nr software 28 x . Form 1040nr software 12/2) – $5,000     184 days     = $184. Form 1040nr software 55681 = $1. Form 1040nr software 00303   184 Since the first and second accrual periods coincide exactly with your tax year, you include in income for Year 1 the OID allocable to the first two accrual periods, $174. Form 1040nr software 11 ($. Form 1040nr software 95665 × 182 days) plus $184. Form 1040nr software 56 ($1. Form 1040nr software 00303 × 184 days), or $358. Form 1040nr software 67. Form 1040nr software Add the OID to the $10,000 interest you report on your income tax return for Year 1. Form 1040nr software Example 6. Form 1040nr software Assume the same facts as in Example 5, except that you bought the debt instrument at original issue on May 1 of Year 1, with a maturity date of April 30, Year 16. Form 1040nr software Also, the interest payment dates are October 31 and April 30 of each calendar year. Form 1040nr software The accrual periods are the 6-month periods ending on each of these dates. Form 1040nr software The number of days for the first accrual period (May 1 through October 31) is 184 days. Form 1040nr software The daily OID for the first accrual period is figured as follows. Form 1040nr software   ($86,235. Form 1040nr software 17 x . Form 1040nr software 12/2) – $5,000     184 days     = $174. Form 1040nr software 11020 = $. Form 1040nr software 94625   184           The number of days for the second accrual period (November 1 through April 30) is 181 days (182 for leap years). Form 1040nr software The daily OID for the second accrual period is figured as follows. Form 1040nr software   ($86,409. Form 1040nr software 28 x . Form 1040nr software 12/2) – $5,000     181 days     = $184. Form 1040nr software 55681 = $1. Form 1040nr software 01965   181 If you hold the debt instrument through the end of Year 1, you must include $236. Form 1040nr software 31 of OID in income. Form 1040nr software This is $174. Form 1040nr software 11 ($. Form 1040nr software 94625 × 184 days) for the period May 1 through October 31 plus $62. Form 1040nr software 20 ($1. Form 1040nr software 01965 × 61 days) for the period November 1 through December 31. Form 1040nr software The OID is added to the $5,000 interest income paid on October 31 of Year 1. Form 1040nr software Your basis in the debt instrument is increased by the OID you include in income. Form 1040nr software On January 1 of Year 2, your basis in the A Corporation debt instrument is $86,471. Form 1040nr software 48 ($86,235. Form 1040nr software 17 + $236. Form 1040nr software 31). Form 1040nr software Short first accrual period. Form 1040nr software   You may have to make adjustments if a debt instrument has a short first accrual period. Form 1040nr software For example, a debt instrument with 6-month accrual periods that is issued on February 15 and matures on October 31 has a short first accrual period that ends April 30. Form 1040nr software (The remaining accrual periods begin on May 1 and November 1. Form 1040nr software ) For this short period, figure the daily OID as described earlier, but adjust the yield for the length of the short accrual period. Form 1040nr software You may use any reasonable compounding method in determining OID for a short period. Form 1040nr software Examples of reasonable compounding methods include continuous compounding and monthly compounding (that is, simple interest within a month). Form 1040nr software Consult your tax advisor for more information about making this computation. Form 1040nr software   The OID for the final accrual period is the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period. Form 1040nr software Reduction for acquisition premium. Form 1040nr software   If you bought the debt instrument at an acquisition premium, figure the OID includible in income by reducing the daily OID by the daily acquisition premium. Form 1040nr software To figure the daily acquisition premium, multiply the daily OID by the following fraction. Form 1040nr software The numerator is the acquisition premium. Form 1040nr software The denominator is the total OID remaining for the debt instrument after your purchase date. Form 1040nr software Example 7. Form 1040nr software Assume the same facts as in Example 6, except that you bought the debt instrument on November 1 of Year 1 for $87,000, after its original issue on May 1 of Year 1. Form 1040nr software The adjusted issue price on November 1 of Year 1 is $86,409. Form 1040nr software 28 ($86,235. Form 1040nr software 17 + $174. Form 1040nr software 11). Form 1040nr software In this case, you paid an acquisition premium of $590. Form 1040nr software 72 ($87,000 − $86,409. Form 1040nr software 28). Form 1040nr software The daily OID for the accrual period November 1 through April 30, reduced for the acquisition premium, is figured as follows. Form 1040nr software 1) Daily OID on date of purchase (2nd accrual period) $1. Form 1040nr software 01965*  2)  Acquisition premium $590. Form 1040nr software 72    3)  Total OID remaining after purchase date ($13,764. Form 1040nr software 83 − $174. Form 1040nr software 11) 13,590. Form 1040nr software 72   4) Line 2 ÷ line 3 . Form 1040nr software 04346  5)  Line 1 × line 4 . Form 1040nr software 04432  6)  Daily OID reduced for the acquisition premium. Form 1040nr software Line 1 − line 5 $0. Form 1040nr software 97533  * As shown in Example 6. Form 1040nr software The total OID to include in income for Year 1 is $59. Form 1040nr software 50 ($. Form 1040nr software 97533 × 61 days). Form 1040nr software Contingent Payment Debt Instruments This discussion shows how to figure OID on a contingent payment debt instrument issued after August 12, 1996, that was issued for cash or publicly traded property. Form 1040nr software In general, a contingent payment debt instrument provides for one or more payments that are contingent as to timing or amount. Form 1040nr software If you hold a contingent payment bond, you must report OID as it accrues each year. Form 1040nr software Because the actual payments on a contingent payment debt instrument cannot be known in advance, issuers and holders cannot use the constant yield method (discussed earlier under Debt Instruments Issued After 1984) without making certain assumptions about the payments on the debt instrument. Form 1040nr software To figure OID accruals on contingent payment debt instruments, holders and issuers must use the noncontingent bond method. Form 1040nr software Noncontingent bond method. Form 1040nr software    Under this method, the issuer must compute a comparable yield for the debt instrument and, based on this yield, construct a projected payment schedule for the instrument, which includes a projected fixed amount for each contingent payment. Form 1040nr software In general, holders and issuers accrue OID on this projected payment schedule using the constant yield method that applies to fixed payment debt instruments. Form 1040nr software When a contingent payment differs from the projected fixed amount, the holders and issuers make adjustments to their OID accruals. Form 1040nr software If the actual contingent payment is larger than expected, both the issuer and the holder increase their OID accruals. Form 1040nr software If the actual contingent payment is smaller than expected, holders and issuers generally decrease their OID accruals. Form 1040nr software Form 1099-OID. Form 1040nr software   The amount shown on Form 1099-OID in box 1 you receive for a contingent payment debt instrument may not be the correct amount to include in income. Form 1040nr software For example, the amount may not be correct if the contingent payment was different from the projected amount. Form 1040nr software If the amount in box 1 is not correct, you must figure the OID to report on your return under the following rules. Form 1040nr software For information on showing an OID adjustment on your tax return, see How To Report OID, earlier. Form 1040nr software Figuring OID. Form 1040nr software   To figure OID on a contingent payment debt instrument, you need to know the “comparable yield” and “projected payment schedule” of the debt instrument. Form 1040nr software The issuer must make these available to you. Form 1040nr software Comparable yield. Form 1040nr software   The comparable yield generally is the yield at which the issuer would issue a fixed rate debt instrument with terms and conditions similar to those of the contingent payment debt instrument. Form 1040nr software The comparable yield is determined as of the debt instrument's issue date. Form 1040nr software Projected payment schedule. Form 1040nr software   The projected payment schedule for a contingent payment debt instrument includes all fixed payments due under the instrument and a projected fixed amount for each contingent payment. Form 1040nr software The projected payment schedule is created by the issuer as of the debt instrument's issue date. Form 1040nr software It is used to determine the issuer's and holder's interest accruals and adjustments. Form 1040nr software Steps for figuring OID. Form 1040nr software   Figure the OID on a contingent payment debt instrument in two steps. Form 1040nr software Figure the OID using the constant yield method (discussed earlier under Debt Instruments Issued After 1984 ) that applies to fixed payment debt instruments. Form 1040nr software Use the comparable yield as the yield to maturity. Form 1040nr software In general, use the projected payment schedule to determine the instrument's adjusted issue price at the beginning of each accrual period (other than the initial period). Form 1040nr software Do not treat any amount payable as qualified stated interest. Form 1040nr software Adjust the OID in (1) to account for actual contingent payments. Form 1040nr software If the contingent payment is greater than the projected fixed amount, you have a positive adjustment. Form 1040nr software If the contingent payment is less than the projected fixed amount, you have a negative adjustment. Form 1040nr software Net positive adjustment. Form 1040nr software   A net positive adjustment exists for a tax year when the total of any positive adjustments described in (2) above for the tax year is more than the total of any negative adjustments for the tax year. Form 1040nr software Treat a net positive adjustment as additional OID for the tax year. Form 1040nr software Net negative adjustment. Form 1040nr software   A net negative adjustment exists for a tax year when the total of any negative adjustments described in (2) above for the tax year is more than the total of any positive adjustments for the tax year. Form 1040nr software Use a net negative adjustment to offset OID on the debt instrument for the tax year. Form 1040nr software If the net negative adjustment is more than the OID on the debt instrument for the tax year, you can claim the difference as an ordinary loss. Form 1040nr software However, the amount you can claim as an ordinary loss is limited to the OID on the debt instrument you included in income in prior tax years. Form 1040nr software You must carry forward any net negative adjustment that is more than the total OID for the tax year and prior tax years and treat it as a negative adjustment in the next tax year. Form 1040nr software Basis adjustments. Form 1040nr software   In general, increase your basis in a contingent payment debt instrument by the OID included in income. Form 1040nr software Your basis, however, is not affected by any negative or positive adjustments. Form 1040nr software Decrease your basis by any noncontingent payment received and the projected contingent payment scheduled to be received. Form 1040nr software Treatment of gain or loss on sale or exchange. Form 1040nr software   If you sell a contingent payment debt instrument at a gain, your gain is ordinary income (interest income), even if you hold the debt instrument as a capital asset. Form 1040nr software If you sell a contingent payment debt instrument at a loss, your loss is an ordinary loss to the extent of your prior OID accruals on the debt instrument. Form 1040nr software If the debt instrument is a capital asset, treat any loss that is more than your prior OID accruals as a capital loss. Form 1040nr software See Regulations section 1. Form 1040nr software 1275-4 for exceptions to these rules. Form 1040nr software Premium, acquisition premium, and market discount. Form 1040nr software   The rules for accruing premium, acquisition premium, and market discount do not apply to a contingent payment debt instrument. Form 1040nr software See Regulations section 1. Form 1040nr software 1275-4 to determine how to account for these items. Form 1040nr software Inflation-Indexed Debt Instruments This discussion shows how you figure OID on certain inflation-indexed debt instruments issued after January 5, 1997. Form 1040nr software An inflation-indexed debt instrument is generally a debt instrument on which the payments are adjusted for inflation and d
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The Form 1040nr Software

Form 1040nr software Publication 526 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionOrdering forms and publications. Form 1040nr software Tax questions. Form 1040nr software Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 526 (such as legislation enacted after we release it), go to www. Form 1040nr software irs. Form 1040nr software gov/pub526. Form 1040nr software What's New Limit on itemized deductions. Form 1040nr software  For 2013, you may have to reduce the total amount of certain itemized deductions, including charitable contributions, if your adjusted gross income is more than: $150,000 if married filing separately, $250,000 if single, $275,000 if head of household, or $300,000 if married filing jointly or qualifying widow(er). Form 1040nr software For more information and a worksheet, see the instructions for Schedule A (Form 1040). Form 1040nr software Reminders Disaster relief. Form 1040nr software  You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization (defined under Organizations That Qualify To Receive Deductible Contributions ). Form 1040nr software However, you cannot deduct contributions earmarked for relief of a particular individual or family. Form 1040nr software Publication 3833, Disaster Relief: Providing Assistance through Charitable Organizations, has more information about disaster relief, including how to establish a new charitable organization. Form 1040nr software You can also find more information on IRS. Form 1040nr software gov. Form 1040nr software Enter “disaster relief” in the search box. Form 1040nr software Photographs of missing children. Form 1040nr software  The IRS is a proud partner with the National Center for Missing and Exploited Children. Form 1040nr software Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Form 1040nr software You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Form 1040nr software Introduction This publication explains how to claim a deduction for your charitable contributions. Form 1040nr software It discusses the types of organizations to which you can make deductible charitable contributions and the types of contributions you can deduct. Form 1040nr software It also discusses how much you can deduct, what records you must keep, and how to report charitable contributions. Form 1040nr software A charitable contribution is a donation or gift to, or for the use of, a qualified organization. Form 1040nr software It is voluntary and is made without getting, or expecting to get, anything of equal value. Form 1040nr software Qualified organizations. Form 1040nr software   Qualified organizations include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals. Form 1040nr software You will find descriptions of these organizations under Organizations That Qualify To Receive Deductible Contributions . Form 1040nr software Form 1040 required. Form 1040nr software   To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A (Form 1040). Form 1040nr software The amount of your deduction may be limited if certain rules and limits explained in this publication apply to you. Form 1040nr software Comments and suggestions. Form 1040nr software   We welcome your comments about this publication and your suggestions for future editions. Form 1040nr software   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Form 1040nr software NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Form 1040nr software Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Form 1040nr software   You can send your comments from www. Form 1040nr software irs. Form 1040nr software gov/formspubs/. Form 1040nr software Click on “More Information” and then on “Comment on Tax Forms and Publications. Form 1040nr software ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Form 1040nr software Ordering forms and publications. Form 1040nr software   Visit www. Form 1040nr software irs. Form 1040nr software gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Form 1040nr software Internal Revenue Service 1201 N. Form 1040nr software Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Form 1040nr software   If you have a tax question, check the information available on IRS. Form 1040nr software gov or call 1-800-829-1040. Form 1040nr software We cannot answer tax questions sent to either of the above addresses. Form 1040nr software Useful Items - You may want to see: Publication 561 Determining the Value of Donated Property Form (and Instructions) Schedule A (Form 1040) Itemized Deductions 8283 Noncash Charitable Contributions  See How To Get Tax Help near the end of this publication for information about getting these publications and forms. Form 1040nr software Table 1. Form 1040nr software Examples of Charitable Contributions—A Quick Check Use the following lists for a quick check of whether you can deduct a contribution. Form 1040nr software See the rest of this publication for more information and additional rules and limits that may apply. Form 1040nr software Deductible As Charitable Contributions Not Deductible As Charitable Contributions Money or property you give to: Money or property you give to: Churches, synagogues, temples, mosques, and other religious organizations  Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park)  Nonprofit schools and hospitals  The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc. Form 1040nr software   War veterans' groups    Expenses paid for a student living with you, sponsored by a qualified organization  Out-of-pocket expenses when you serve a qualified organization as a volunteer Civic leagues, social and sports clubs, labor unions, and chambers of commerce  Foreign organizations (except certain Canadian, Israeli, and Mexican charities)  Groups that are run for personal profit  Groups whose purpose is to lobby for law changes  Homeowners' associations  Individuals  Political groups or candidates for public office    Cost of raffle, bingo, or lottery tickets  Dues, fees, or bills paid to country clubs, lodges, fraternal orders, or similar groups  Tuition  Value of your time or services  Value of blood given to a blood bank   Prev  Up  Next   Home   More Online Publications