Sergio acquires a $100,000 Ternco Corporation bond (5%, 20-year bond) on January 1, 2018 for $75,000. The bond had been issued on January 1, 2016. If Sergio holds the bond to maturity, at redemption he will recognize
A) $0 gain or loss.
B) ordinary income.
C) a long-term capital gain.
D) a mix of ordinary income and long-term capital gain.
B) ordinary income.
This is a market discount bond. Gain at disposition is ordinary income to the extent of the accrued market discount. The entire gain is ordinary income if the bond is held to maturity.
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