DEFINITION of 'Bond Washing'

The practice of selling a bond just before it pays a coupon payment and then buying it back once the coupon has been paid. Bond washing results in a tax-free capital gains because after the coupon has been paid, the bond will sell for less.

BREAKING DOWN 'Bond Washing'

Bond washing is a method of tax avoidance. In this manner the bond holder avoids paying taxes on the bond coupon income. Because bond washing is a form of tax evasion, whereby buyers and sellers may collude to benefit from tax avoidance, it has been banned, though the practice still exists.

RELATED TERMS
  1. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
  2. Coupon

    The annual interest rate paid on a bond, expressed as a percentage ...
  3. Ex Coupon

    A bond or preferred stock that does not include the interest ...
  4. Bunny Bond

    A type of bond that offers investors the option to reinvest coupon ...
  5. Bond

    A debt investment in which an investor loans money to an entity ...
  6. Coupon Stripping

    The separation of a bond's periodic interest payments from its ...
Related Articles
  1. Personal Finance

    ‘Retired’ Too Soon? How to Reenter the Workforce After 50

    Here's what you need to know to survive financially and reenter the workforce when you're over 50 and a layoff has forced you to "retire" too soon.
  2. Investing

    What is a Premium Bond?

    A premium bond is one that trades above its face or nominal amount.
  3. Personal Finance

    Coupon Shopping: Clip Your Way To Savings

    Use coupons strategically to score big savings on everyday purchases.
  4. Investing

    Risks To Consider Before Investing In Bonds

    Make sure you understand the risks associated with bonds before making an investment decision.
  5. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  6. Personal Finance

    6 Sneaky Ways Coupons Make You Spend More

    If you're hoping to save money by using coupons, watch out for sellers' strategies.
  7. Investing

    The Pros & Cons Of Using Coupons For Your Business

    Coupons can drive business to your store – you just need to make sure it's profitable business. Here are strategies that work.
  8. Personal Finance

    6 Tricks To Make Coupons Work For You

    Use these strategies to counteract the stores' and manufacturers' coupon tactics and come out ahead.
  9. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
RELATED FAQS
  1. How does the money from the interest on my bond get to me?

    When you buy a regular coupon bond, you are entitled to a coupon, which is typically paid at regular intervals, and the face ... Read Answer >>
  2. Why do bond coupon rates vary so greatly?

    Learn about the two major reasons that cause bond coupon rates to vary so dramatically and what role coupons play in the ... Read Answer >>
  3. How does the effective interest method treat the interest on a bond?

    Find out why you should look at the effective interest of a bond rather than simply relying on its stated coupon rate when ... Read Answer >>
  4. If I buy a $1,000 bond with a coupon of 10% and a maturity in 10 years, will I receive ...

    Simply put: yes, you will. The beauty of a fixed-income security is that the investor can expect to receive a certain amount ... Read Answer >>
  5. What are the key factors that will cause a bond to trade as a premium bond?

    Learn about the primary factor that can cause bonds to trade at a premium, including how national interest rates affect bond ... Read Answer >>
  6. How do interest rates affect a bond's coupon rate?

    Find out how the changes in the national interest rate affect the coupon rates of newly issued bonds and why coupon rates ... Read Answer >>
Hot Definitions
  1. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  2. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  3. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  4. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  5. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  6. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
Trading Center