In article <YJsvj.12099$Ch6.1984[at]newssvr11.news.prodigy.net> ,
Alan <sfcnm-mtm[at]yahoo.com> wrote:

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T-Bills are sold for up to one year, and they're all sold as discount
instruments. (Treasury Notes and Bonds are longer, sold around par,
and pay coupons.)

Seth

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Rich Carreiro wrote:
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are sold at a discount.

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"Rich Carreiro" <rlc-news[at]rlcarr.com> wrote in message
news:m34pc2dxcu.fsf[at]swing-shift.time-tripper.com...
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[snip]

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Thanks very much. Since I pay estimated tax, I need to figure my year's
income, which led to my query. As best I can, I compute all income for the
coming year on a spreadsheet, month by month and quarter by quarter.

For me, if I get a refund of $100, I think I should record it in my
estimated income spreadsheet at maturity date (6 months hence) as interest.
Right?

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Alan <sfcnm-mtm[at]yahoo.com> writes:

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Unfortunately, Alan is completely wrong in his explanation of the
taxation of T-Bills (and how they pay interest, for that matter).

To the original poster -- you're generally on the right track. The
refund is NOT interest and is not reported anywhere at all. Your
original basis is indeed $9900. When the T-Bill matures and you get
your $10,000, the $100 is interest, NOT a capital gain, and is taxed
in the year in which the T-Bill matures.

Furthermore, if a T-Bill is sold before maturity, any gain is
considered to be and is reported as interest, with basis being your
original basis plus the amount interest recognized on the sale (in
other words, you'll always have zero capital gain or less when selling
a T-Bill). I don't recall if this is a special rule for T-Bills or
applies to any zero purchased with less than one year until maturity.
If pressed, I believe it is a T-Bill specific rule. As an example, if
you paid $9900 for the T-Bill and sold it before maturity for $9945,
you will have to report $45 of interest and have a basis of $9945.

--
Rich Carreiro rlc-news[at]rlcarr.com

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Harry Thompson wrote:
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do not have any OID. Your cost basis is what you paid for the
bill ($9900). Upon maturity you would have a $100 capital gain.
Your interest income is paid to you separately every six months.

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I'm a little confused about what is taxable interest and when tax is due for
Treasury Bills.

To illustrate, say I buy a 6 mo bill for $10,000 from Treasury Direct. On
Issue Date, Treasury Direct refunds $100 to my bank account. Since Treasury
Direct labels it "refund" I assume that is not interest, and I purchased the
Bill for $9,900. Am I right or wrong?

On maturity, I get the full 10,000 back to my bank account. I assume that
the $9,900 is my principal, and $100 is my interest. Am I right or wrong?

If I'm right, the $100 is taxable interest, but when is it taxable? At time
of payment? Or is it accrued since time of purchase?

I hope my question is clear enough.

Thanks

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >