See IRS Pubs 550 and 1212.

A quick look through the publications reveals the following:

The financial institution that set up the STRIP (i.e.,
generally the bank/broker you bought the STRIP from is
required to provide you with a Form 1099-OID reporting to
you your allocated portion of the OID on the unstripped
bond. However, you must still recompute the reported OID,
under the procedures described in Pub 1212, to determine how
much of that OID must actually be included in your income.

I believe that the reason for this is that if you bought the
STRIP from someone who was not the original issuer of the
STRIP, you may have paid market premium or discount that
will affect the amount of OID you actually have.

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Rich Carreiro wrote:
- quote -

I thought the amount on the 1099-OID is the OID for the
original bond. If you bought a Stripped Bond, then what you
paid is your cost basis and the OID is computed based on
that value, the interest rate and remaining term. The
taxpayer would be required to make an OID adjustment. Isn't
that why all of our software has the OID adjustment column
where you enter interest income?

--
Alan
http://taxtopics.net

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bewildered[at]yahoo.com (Bewildered) posted:

- quote -

No. You should receive a 1099-INT from your broker.

- quote -

It's interest. Keep good records, adding each year's
interest to your "cost basis" -- so you'll come close to
zeroing-out in the final year. There's usually a
partial-year's income to complicate things. But you don't
want to be stuck with a double-taxation, when you receive
that 1099-B for the final $100 payout.

- quote -

Assuming you have state income tax due, I believe most
states exempt income from federal securities.

- quote -

Been there, thought that -- many times. (Will we never
learn?)

Bill

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"Bewildered" <bewildered[at]yahoo.com> writes:

- quote -

The broker will send you a 1099-OID with the amount of
imputed interest the STRIP earned that year. You report
it on your return and increase your basis in the STRIP
by that amount. Time was, you had to compute it yourself
(see IRS Pub 1212 for the gory details), but a few years
ago the IRS changed the regs to require brokers to compute
the OID on zeros correctly.

- quote -

It is interest.

- quote -

Since it is interest on a US Treasury obligation, it
is exempt from state tax. However, it is fully
taxable federally.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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It might be a bit late to ask now, but today I bought some
Treasury strips; they cost $59 each and are redeemed for
$100 in 2017.

I understand I have to pay taxes on the appreciation each
year, but how does that work? Do I get a 1099int or do I
have to figure it out myself?
Is it interest or capital gains?
Is it state tax free?

Yeah, I should have asked these questions yesterday.

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