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De Minimis Tax Rule

What is the 'De Minimis Tax Rule'

The De Minimis tax rule is a rule that states that capital gains tax must be paid on a bond if the bond was purchased at a discount to the face value in excess of a quarter point per year between the time of acquisition and 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.

Explaining 'De Minimis Tax Rule'

To determine whether a bond is subject to this tax, calculate the amount of full years between the discounted bond's purchase date and the maturity date and multiply this by 0.25. Subtract the calculated amount from the bond's par value. If this amount is above the purchase price of the discount bond, the purchased bond is subject to capital gains tax.


Further Reading


State Sales and Use Tax Jurisdiction: An Economic Nexus Standard for the Twenty-First Century
heinonline.org [PDF]
… has failed to act, leaving the Supreme Court to craft with qualitative language what should be a quantitative de minimis rule … This cannot be justified on tax policy grounds … sellers for their collection costs, say by allowing them to retain a fraction of the taxes collected, then there …

New De Minimis anti-Abuse Rule in the Parent-Subsidiary Directive: Validating EU Tax Competition and Corporate Tax Avoidance, TheNew De Minimis anti-Abuse Rule in the Parent-Subsidiary Directive: Validating EU Tax Competition and Corporate Tax Avoidance, The
heinonline.org [PDF]
… has failed to act, leaving the Supreme Court to craft with qualitative language what should be a quantitative de minimis rule … This cannot be justified on tax policy grounds … sellers for their collection costs, say by allowing them to retain a fraction of the taxes collected, then there …

IRS UPDATES THE DE MINIMIS RULEIRS UPDATES THE DE MINIMIS RULE
search.proquest.com [PDF]
… has failed to act, leaving the Supreme Court to craft with qualitative language what should be a quantitative de minimis rule … This cannot be justified on tax policy grounds … sellers for their collection costs, say by allowing them to retain a fraction of the taxes collected, then there …

Options for taxing financial supplies in value added tax: EU VAT and Australian GST models comparedOptions for taxing financial supplies in value added tax: EU VAT and Australian GST models compared
www.jstor.org [PDF]
… has failed to act, leaving the Supreme Court to craft with qualitative language what should be a quantitative de minimis rule … This cannot be justified on tax policy grounds … sellers for their collection costs, say by allowing them to retain a fraction of the taxes collected, then there …

Taxation of the Digital Economy: Adapting a Twentieth-Century Tax System to a Twenty-First Century EconomyTaxation of the Digital Economy: Adapting a Twentieth-Century Tax System to a Twenty-First Century Economy
papers.ssrn.com [PDF]
… has failed to act, leaving the Supreme Court to craft with qualitative language what should be a quantitative de minimis rule … This cannot be justified on tax policy grounds … sellers for their collection costs, say by allowing them to retain a fraction of the taxes collected, then there …

The Level of Amber Box Policy Support for Agricultural Policy in China: Comparison of the Consistency of WTO RulesThe Level of Amber Box Policy Support for Agricultural Policy in China: Comparison of the Consistency of WTO Rules
en.cnki.com.cn [PDF]
… has failed to act, leaving the Supreme Court to craft with qualitative language what should be a quantitative de minimis rule … This cannot be justified on tax policy grounds … sellers for their collection costs, say by allowing them to retain a fraction of the taxes collected, then there …



Q&A About De Minimis Tax Rule


Why do you have to pay capital gains tax on discounted bonds?

The reason for this tax is because the bondholder gains on the difference between the price paid and price received at maturity, which is considered a capital gain.

Are there any exceptions to paying these taxes?

Yes, there are exceptions such as when interest rates change dramatically over time or if an investor purchases multiple bonds with different maturities but same credit quality. These rules apply only when purchasing individual bonds rather than mutual funds that hold several different types of securities within them.

What is De Minimis Tax Rule?

The De Minimis tax rule states that capital gains tax must be paid on a bond if the bond was purchased at a discount to the face value in excess of a quarter point per year between the time of acquisition and maturity.

How do you calculate whether or not you have to pay capital gains taxes on discounted bonds?

You calculate by multiplying how many full years there are between purchase date and maturity date times .25. Then subtract from par value. If this amount is above purchase price, then it's subject to capital gains taxes.