what taxes do you have to pay if you sell a bond before it matures?

Answer 1

Like with any other security, you have to pay a capital gains tax on the bond if it has gone up in value since you bought it. Generally the longer you hold a secuity before selling, the less your capital gains tax rate will be because the IRS rewards long-term investing. Conversely, if you sell at a loss, you have a capital loss, which may lower your tax burden.

Also, unless this is a "tax-exempt" bond, like some types of munis, you will have to pay a separate tax on the interest earned. It doesn't matter whether you actually collected the coupon or sold between interest payments--you'll pay tax on the accrued amount. Here's what IRS has to say about it:
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"If you sell a bond between interest payment dates, part of the sales price represents interest accrued to the date of sale. You must report that part of the sales price as interest income for the year of sale.

If you buy a bond between interest payment dates, part of the purchase price represents interest accrued before the date of purchase. When that interest is paid to you, treat it as a return of your capital investment, rather than interest income, by reducing your basis in the bond."
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Usually, the amount of earned interest will be provided to you by the broker (or the buyer) on form 1099-INT. That's as far as federal taxes go. Treasury Bills, notes and bonds are not subject to state taxes. But corporate bonds are.

Interest income is generally taxed at the same rate as ordinary income, which is usually higher than the capital gains rate, depending again on the length of the holding period.

These are just some general considerations. You will certainly want to do more homework to see what specific rules apply in your case and what the numbers come out to be.

Answer 2

Taxes are due on all interest payments -- at the ordinary tax rate.

When you sell a bond before it matures, you get price plus accrued interest. You have to pay taxes on the accrued interest at the ordinary tax rate. You can then judge if you have a capital gain or loss based on the rest of it. Subtract the flat price (price without accrued interest) when you bought it from the flat price when you sold it. If that value is positive, you have to pay taxes at the capital gains rate. If you lost money, then your capital gains loss can offset other capital gains you have made.

There are some exceptions. For example, if you bought a Zero Coupon Bond years ago -- then you are required to adjust the book value of the bond every year. The change in book value is considered an interest payment -- and you have to pay taxes at the ordinary tax rate on it each year (even though you get no cash flow from the bond). However, when you sell it, you only pay taxes on the gain from the previous book value.

Answer 3

you have to pay taxes on any gains from selling the bond. but if you get a loss, you will have a deduction.

Answer 4

First you have to pay income taxes from any interest payment you have received (most bonds pay semi-anually).

Then you have to pay taxes from your profit selling the bond.

Answer 5

to make it simple.

A bond maturing is just like selling it at its face value on the maturity date. So selling it today is just like "changing the maturity date today" and "changing the face value to today's price".