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This section describes the amortization/accretion methods you can select in Eagle Accounting to recognize market discount amortization for principal repayments on fixed income securities purchased at a discount.

Internal Revenue Code Section 1276 dictates the acceptable methods of recognizing amortization income on dispositions of fixed income securities purchased at a discount. For USTAX purposes, securities purchased at a discount (other than Original Issue Discount) typically require that the amortization stream be calculated using I.R.C. Sections 1272(a) (3) and 1272(a) (6) but the actual recognition of the income is deferred until disposition. Special rules dictate how the amortization should be recognized for principal repayments.

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All calculations are performed at the lot level (For example, no market discount from one lot shall be applied to another when calculating the amount of amortization to recognize). The election for Accelerated Market Discount applies only to Identified Lot (IDLOT) cost accounting.

You set up Accelerated Market discount at the amortization rule level by setting the Amortization at Disposition and Paydown Costing Allocation field value, as follows. For information about creating and editing amortization & accretion rules, see Manage Amortization & Accretion Rules.

To use the election, in the Create Amortization & Accretion Rules panel select the following field options:

  • Amortization at Disposition (tag 3902) to Yes

  • Paydown Costing Allocation (tag 16008) to Accelerated Market Discount Recognized

When setting up a rule to follow Accelerated Market Discount and PAC method (For example, set the Yield Type field to Net Present Value, and set the Adjustment Type field to PAC), you must set up individual accretion instances for Amortization/Accretion Election (tag 3933) for Market Discount (MD) and Market Premium (MP).

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