§454 — Title 26 Internal Revenue Code | U.S. Code

§454 Obligations issued at discount

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter E— - Accounting Periods and Methods of Accounting › Part PART II— - METHODS OF ACCOUNTING › Subpart Subpart B— - Taxable Year for Which Items of Gross Income Included › § 454

Last updated Apr 6, 2026|Official source

Summary

You can choose to report the increase in value of certain discount, non-interest bonds as income in a tax year even if your normal accounting method does not count it that year. To do this, you must make the choice on your tax return for any year. Once you choose it, it applies to all of those kinds of bonds you owned at the start of that first year and to any you buy later. The choice stays in effect for future years unless the Secretary allows you to switch to a different method and sets rules for that change. For bonds you already owned when the choice first applies, any increase that happened between when you bought them (or, for certain Series E rules, the bond series’ acquisition date) and the first day of that year is also treated as income in that year. This rule covers obligations issued by the United States, and obligations issued by a State, a U.S. possession, a political subdivision of those, or the District of Columbia. It also covers a taxpayer who holds a Series E United States savings bond at maturity and, under regulations in chapter 31 of title 31, either keeps the money in another U.S. obligation (not a current-income obligation) or exchanges the Series E bond for another nontransferable U.S. obligation in an exchange where gain or loss is not recognized because of section 1037 (or the part of section 1031 that relates to section 1037).

Title 26, §454

Internal Revenue Code — Source: USLM XML via OLRC

(a)If, in the case of a taxpayer owning any non-interest-bearing obligation issued at a discount and redeemable for fixed amounts increasing at stated intervals or owning an obligation described in paragraph (2) of subsection (c), the increase in the redemption price of such obligation occurring in the taxable year does not (under the method of accounting used in computing his taxable income) constitute income to him in such year, such taxpayer may, at his election made in his return for any taxable year, treat such increase as income received in such taxable year. If any such election is made with respect to any such obligation, it shall apply also to all such obligations owned by the taxpayer at the beginning of the first taxable year to which it applies and to all such obligations thereafter acquired by him and shall be binding for all subsequent taxable years, unless on application by the taxpayer the Secretary permits him, subject to such conditions as the Secretary deems necessary, to change to a different method. In the case of any such obligations owned by the taxpayer at the beginning of the first taxable year to which his election applies, the increase in the redemption price of such obligations occurring between the date of acquisition (or, in the case of an obligation described in paragraph (2) of subsection (c), the date of acquisition of the series E bond involved) and the first day of such taxable year shall also be treated as income received in such taxable year.

(b)In the case of any obligation—

(1)of the United States; or

(2)of a State or a possession of the United States, or any political subdivision of any of the foregoing, or of the District of Columbia,

(c)In the case of a taxpayer who—

(1)holds a series E United States savings bond at the date of maturity, and

(2)pursuant to regulations prescribed under chapter 31 of title 31 (A) retains his investment in such series E bond in an obligation of the United States, other than a current income obligation, or (B) exchanges such series E bond for another nontransferable obligation of the United States in an exchange upon which gain or loss is not recognized because of section 1037 (or so much of section 1031 as relates to section 1037),

Notes & Related Subsidiaries

Editorial Notes

Amendments

1983—Subsec. (c)(2). Pub. L. 97–452 substituted “chapter 31 of title 31” for “the Second Liberty Bond Act”. 1976—Subsec. (a). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary” in two places. Subsec. (b)(2). Pub. L. 94–455, § 1901(c)(2), struck out “, a Territory,” after “a State”. 1959—Subsec. (c)(2). Pub. L. 86–346 designated existing provisions as cl. (A), inserted “of the United States” after “an obligation” and struck out “the maturity value of” before “such series E bond” and “which matures not more than 10 years from the date of maturity of such series E bond” after “income obligation” in such cl. (A), and added cl. (B).