Tax Implications of Taxable Debt Securities

What this video covers

• Which issuers trigger federal, state, and local tax on interest income, and which specific agencies share the Treasury state/local exemption
• Why Fannie Mae, Freddie Mac, and Ginnie Mae interest is fully taxable despite sounding government-backed
• How original issue discount (OID) accretes annually under the constant yield method, producing phantom ordinary income with no cash received
• Why zero-coupon bonds are unsuitable for taxable accounts and belong in individual retirement accounts (IRAs) or other tax-deferred vehicles
• The mandatory versus elective rules: OID accretion is required, market discount annual recognition is elective, and premium amortization is elective for taxable bonds but mandatory for tax-exempt municipal bonds
• Why market discount realized at maturity is taxed as ordinary income, not capital gain, and how accrued market discount is treated on an earlier sale
• How adjusted basis (original price plus accreted OID, or minus amortized premium) determines capital gain or loss when a bond is sold before maturity