How structured notes are taxed
Many market-linked structured notes are treated as contingent payment debt instruments. That means the tax follows a schedule the issuer sets rather than the payoff you actually receive: interest accrues every year at a comparable yield and is taxed as ordinary income, even though no cash arrives until maturity.
Those accruals raise your basis in the note. At maturity the difference between the payout and that adjusted basis is trued up — a positive difference is additional ordinary interest, and a shortfall is an ordinary loss up to the interest you already reported, with any remainder becoming a capital loss.
Basis and date — the mechanics come from 26 U.S.C. sec. 1275 and Treasury Regulation sec. 1.1275-4, with accruals reported on Form 1099-OID. Content reflects September 2026. The comparable yield is set by the issuer, so take it from the pricing supplement rather than estimating it.
This tool is a simplified estimate and does not determine your actual tax. Notes with periodic coupons, early call features, non-U.S. issuers or different stated tax treatment behave differently, so confirm the characterization with a tax professional.
Frequently asked questions
A contingent payment debt instrument accrues interest each year at the comparable yield the issuer sets, even though no cash arrives until maturity. That phantom income is reported on Form 1099-OID and taxed as ordinary interest along the way.
Under the contingent payment rules a loss is ordinary first, up to the interest you previously accrued and paid tax on, and only the excess is a capital loss. That ordering matters because ordinary losses are not limited the way capital losses are.
No. Principal-protected notes, notes treated as prepaid forward contracts and equity-linked certificates can each be taxed differently. The pricing supplement states the issuer tax treatment, so read it before assuming this model applies.