What is the 'De Minimis Tax Rule'
The De Minimis tax rule is a rule that states that capital gains tax must be paid on a bond if the bond was purchased at a discount to the face value in excess of a quarter point per year between the time of acquisition and maturity. The reason for the capital gains tax is that the bondholder gains on the difference between the price paid and the price received at maturity, which is considered a capital gain.
BREAKING DOWN 'De Minimis Tax Rule'
To determine whether a bond is subject to this tax, calculate the amount of full years between the discounted bond's purchase date and the maturity date and multiply this by 0.25. Subtract the calculated amount from the bond's par value. If this amount is above the purchase price of the discount bond, the purchased bond is subject to capital gains tax.
For example, if you are looking at a 10year bond with a par value of 100 and five years left until maturity, simply multiply five years by 0.25 to get 1.25. You then subtract the 1.25 from the par value to get the de minis cut off amount, which in this example is 98.75 (1001.25). If the price of the discount bond you purchased is below 98.78 per 100 of par value you will be subject to capital gains tax under the de minimis tax rule.

Discount Bond
A bond that is issued for less than its par (or face) value, ... 
Market Discount
The difference between a bond's stated redemption price and its ... 
Accrued Market Discount
The gain in the value of a discount bond expected from holding ... 
Pull To Par
The movement of a bond's price toward its face value as it approaches ... 
Bond Discount
The amount by which the market price of a bond is lower than ... 
Face Value
The nominal value or dollar value of a security stated by the ...

Managing Wealth
How To Evaluate Bond Performance
Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk. 
Personal Finance
How To Choose The Right Bond For You
Bond investing is a stable and lowrisk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy. 
Markets
Explaining Original Issue Discount
An original issue discount is the amount below par at which a bond or other debt instrument is issued. 
Personal Finance
Taxation Rules For Bond Investors
Several factors affect the taxable interest that must be reported. Learn more here. 
Markets
Understanding Face Value
Face value is the dollar value stated on a security. 
Markets
Are Bonds Selling At A Premium A Good Investment?
A bond with a par value â€“ or face value  of $1,000 is selling at a premium when its price exceeds par. 
Trading
Top 6 Uses For Bonds
We break down the stodgy stereotype to see what these investments can do for you. 
Investing
What is Par Value?
Par value is a term used for investments that means original value. Itâ€™s also called face value or nominal value. 
Markets
What Taxable Interest Must Bond Investors Report?
Many factors impact the amount of taxable interest bond investors must report. 
Markets
Simple Math for FixedCoupon Corporate Bonds
A guide to help to understand the simple math behind fixedcoupon corporate bonds.

How is a corporate bond taxed?
Understand the three components of a corporate bond that are subject to taxes. Learn about the ways the federal and state ... Read Answer >> 
What happens to the price of a premium bond as it approaches maturity?
Learn how bonds trade in regard to premiums and discounts, and how bond prices shift closer to par value as bonds approach ... Read Answer >> 
Can the marginal propensity to consume ever be negative?
Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the basic components of bonds and how ... Read Answer >> 
What types of fees apply to checking accounts?
Learn about the difference between a bond's coupon rate and its yield to maturity, and how the par value, coupon rate and ... Read Answer >> 
Will the price of a premium bond be higher or lower than its par value?
Find out why the selling price of a premium bond is always higher than its par value, including how changing interest rates ... Read Answer >> 
How does face value differ from the price of a bond?
Discover how bonds are traded as investment securities and understand the various terms used in bond trading, including par ... Read Answer >>