• cap gains not ordinary incomeTax-exempt bonds that were purchased with a market discount before May 1, 1993, are not treated as market discount bonds.
  • Any gain on the sale of such bonds is treated as capital gain.
  • For example, suppose you bought tax-exempt bonds that were issued with a $10,000 par value. Before May 1, 1993, you paid $9,000 for those bonds.
  • If you sell the bonds now for $9,500, you’ll have a $500 long-term capital gain.
  • A similar example using tax-exempt bonds bought after April 30, 1993, would result in $500 of ordinary income taxed at higher rates.
2011 Q2 | Capital Gains, Not Ordinary Income
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