Tax Facts

7673 / What is a stripped bond?

A stripped bond is a bond issued with interest coupons where the ownership of any unmatured coupon is separated from the ownership of the rest of the bond.1 It may be a Treasury, corporate, or municipal obligation. With respect to purchases after July 1, 1982, a coupon includes any right to interest.2

In 2002, the Service released guidance on the application of the coupon stripping rules to certain fees payable out of mortgage payments received by mortgage pool trusts.3

In 2008, the Treasury Department lowered the minimum and multiple amounts of Treasury marketable notes, bonds, and Treasury Inflation-Protected Securities (TIPS) that may be stripped from $1,000 to $100. The change applies to all Treasury marketable securities eligible for stripping (notes, bonds, plus TIPS issued after January 15, 1985) outstanding on and after April 7, 2008.4

1. IRC § 1286(e)(2).

2. IRC § 1286(e)(5).

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