De Minimis Tax Rule

The de minimis tax rule is a calculation on discount bonds to determine if profits are taxed as capital gains or ordinary income. The bond must meet a certain price threshold for the rule to be applied. If the discount is less than a quarter-point of the par value from the time of purchase until the maturity of the bond, it is too small to be a market discount for tax purposes. De minimis is a Latin term that means "about minimal things." The de minimis tax rule is generally applicable during an environment of rising interest rates, which causes bond prices to fall, thus creating a discount to par value.

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