DE MINIMIS TAX RULE

It states that a capital should gain tax and must be paid on a bond if the bond purchased at a discount. It should face the value in a quarter point per year between the time of maturity. The reason for the capital gains tax is that the bondholder gains on the difference between the price paid and the price received at maturity, which is considered a capital gain. If this amount is above the purchase price of the discount bond, the purchased bond is subject to capital gains tax.

For example, if you are looking at a 10-year bond with a par value of 100 and five years left until maturity, simply multiply five years by 0.25 to get 1.25. You then subtract the 1.25 from the par value to get the de minis cut off amount, which in this example is 98.75 (100-1.25). If the price of the discount bond you purchased is below 98.78 per 100 of par value you will be subject to capital gains tax under the de minimis tax rule.

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