Original Issue Discount


Original-Issue Discount (OID)
Some bonds are issued at a discount to the Par value. In the case of a municipal bond, the accretion of the value from the original issue discount price to Par is considered tax-free income.
Throughout the life of the bond, the cost basis of the bond will increase based on a formula known as constant yield to maturity (CYM).
This means that if you buy a bond with an OID priced at 96, and sell it 5 years later at 98, you will not incur a capital gain as long as the accreted value of the bond based on CYM is 98 or greater

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