As we know, interest payments from treasuries are subject to Federal income tax rate same as ordinary income. Also a zero coupon bond would be subject to an impugned income even without any cash flow.
However, what if I bought a Treasury maturing in 13 months paying a coupon rate of .25%? Obviously, the bond would be sold at a discount (much like a zero coupon bond), so most of the return would come from appreciation at maturity. As the bond would held longer than 1 year, would that gain be subject to a long-term capital gains tax rate vs. the higher ordinary income tax rate? If I had long-term capital losses in prior years,
could I offset my Treasury gains?
I thought I read somewhere to avoid a bond being designated as a zero coupon bond, the coupon rate must be .25% or higher.
Insights would be appreciated.