Are zero coupon bonds taxable?

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How are zero coupon bonds taxed? There is obviously no coupon payment but there can be capital appreciation (or depreciation). Are zero coupon bonds taxable and how?

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score 0 · Answer 1 · 2012-12-02T19:49:33+00:00

Zero Coupon Bonds mean that interest is accrued but it will be paid when the bond matures. Tax is paid on the accrued interest regardless of the fact its not paid. Of course, there are some zero coupon bonds that do not attract tax such as the municipal zero coupon bonds.