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What amount of interest will be taxable annually

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Question - Lou bought a $10,000 bond for 9,500. The bond will mature in 10 years, and Lou intends to hold it until maturity. The bond pays 5% interest annually on the face value, and Lou receives an annual check for $500 in taxable interest payments. What amount of interest will be taxable annually and with tax documents should Lou receive?

a. $550 ($500 reported on form 1099-int and $50 reported on form 1099-OID).

b. No tax documents will be received annually since no interest is taxable until the bond matures.

c. $500 reported on a form 1099-INT.

d. $550, but only a form 1099-INT reporting $500 since Form 1099-OID is not required.

Reference no: EM132440898

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