§1282 Deferral of Interest Deduction Allocable to Accrued Discount

Summary

For short-term debt, you can only deduct net direct interest in a year if the interest you paid is more than two amounts added together: the daily share of the purchase discount for each day you owned the debt that year, and any interest that accrued while you held it that year but you did not include in income because of your accounting method. The rule does not apply to short-term debt that is covered by section 1281. You can choose to have section 1281 apply to all short-term debt you acquire on or after the first day of the first taxable year when you make that choice. That choice stays in effect for that year and later years unless the IRS allows you to revoke it. Some related technical rules like those in sections 1277(b) and (c) apply here, and special limits for nongovernmental debt are in section 1283(c).