Updated October 17, 2026. Quick answer: Code D goes in column (f) of Form 8949 when your Form 1099-B or Form 1099-DA shows accrued market discount for a bond you sold or retired. The column (g) amount comes from the Worksheet for Accrued Market Discount Adjustment, and it is entered as a negative number. That part of the gain is also reported as interest income on your return.
When code D applies
The code D row in the column (f) table reads “You received a Form 1099-B or Form 1099-DA (or substitute statement) showing accrued market discount in box 1f on Form 1099-B or box 1h on Form 1099-DA”. Box 1f and box 1h are explained on Form 1099-DA boxes 1h and 1i. Interest-side reporting for market discount is on Form 1099-INT boxes 10 to 13.
What market discount is
Publication 550 describes the bond this way: “A market discount bond is any bond having market discount except:” The list of exceptions that follows is in Publication 550. “If you buy a bond on the secondary market, it may have market discount.”
The definition is spelled out: “Market discount is the amount of the stated redemption price of a bond at maturity that is more than your basis in the bond immediately after you acquire it.” As for a bond you got from the start: “Generally, a bond you acquired at original issue is not a market discount bond.”
What to enter in column (g)
The instructions give the main rule: “Use the Worksheet for Accrued Market Discount Adjustment in Column (g), later, to figure the amount to enter in column (g).” That is a short worksheet printed in the instructions. It starts from the proceeds and basis on your statement and the accrued market discount in box 1f or box 1h, and it ends with the amount for column (g). This page does not reproduce its lines. Use the worksheet in your own copy of the instructions.
The worksheet’s lead-in tells you when it applies: “If you received a Form 1099-B or Form 1099-DA (or substitute statement) reporting the sale or retirement of a market discount bond, enter code “D” for the transaction in column (f) of the appropriate part of Form 8949 and complete this worksheet to figure the amount to enter in column (g).” If other amounts on your statement are also wrong, the worksheet says to use the corrected amounts, which ties to Form 8949 code B.
Two exceptions to the worksheet
The instructions name two cases. The first: “If you received a partial payment of principal on a bond, don’t use the worksheet.” “Instead, enter the smaller of the accrued market discount or your proceeds in column (g).” “Also, report it as interest on your tax return.”
The second case is a bond for which you made the current-inclusion choice. The instructions say “If you chose to include market discount in income currently, enter -0- in column (g).” “Before figuring your gain (or loss), increase your basis in the bond by the market discount you have included in income for all years.” Publication 550 describes the choice: “When you buy a market discount bond, you can choose to accrue the market discount over the period you own the bond and include it in your income currently as interest income.” It also says “You increase the basis of your bonds by the amount of market discount you include in your income.”
Why the discount is treated as interest
Without that choice, Publication 550 says “You must treat any gain when you dispose of the bond as ordinary interest income, up to the amount of the accrued market discount.” The rule for partial payments covers a market discount bond you acquired after October 22, 1986, when you did not choose to include the discount in income currently. In that case “you must treat the payment as ordinary interest income up to the amount of the bond’s accrued market discount.” Accrued discount itself is figured in one of two ways. The ratable method is “Treat the market discount as accruing in equal daily installments during the period you hold the bond.” The other is a constant yield method you can elect.
If a loss on the bond is a wash sale
The instructions add one more line: “If the disposition of a market discount bond results in a loss subject to the wash sale rules, enter “W” in column (f) and follow the instructions for code W below.” See Form 8949 code W and the wash sale rule. When two codes apply, the instructions say “If more than one code applies, enter all the codes that apply in alphabetical order” with no space or comma.
Where it goes next
Once the column (g) amount is in, column (h) is figured as the instructions say: “First, subtract the cost or other basis in column (e) from the proceeds (sales price) in column (d). Then take into account any adjustments in column (g).” The totals then go to Schedule D: “Include on your Schedule D the totals from all your Parts I and II.” See the Schedule D page and Form 8949 instructions. Which box to check is on Form 8949 boxes A to L.
Edition and line numbers
This page reads the 2025 Form 8949 and its 2025 instructions, along with the Publication 550 edition for 2025 returns where cited, the current files irs.gov served on 2026-10-17, for the tax year 2025 return filed in 2026. Check the tax year printed on the form you are filling in and use the column letters and codes on that year’s form, because a different year’s form can letter its columns or word its codes differently.
Common mistakes
- Using the worksheet after a partial payment of principal. The instructions say “If you received a partial payment of principal on a bond, don’t use the worksheet.” The column (g) entry is the smaller of the accrued market discount or your proceeds.
- Entering a market discount adjustment after electing to include it currently. The instructions say “If you chose to include market discount in income currently, enter -0- in column (g).”
- Forgetting that the amount is also interest. The instructions say “Also, report it as interest on your tax return.” The column (g) entry alone does not report it.
Related: Form 1099-DA boxes 1h and 1i, Form 1099-INT boxes 10 to 13, The wash sale rule, Form 8949 instructions, and Schedule D (Form 1040).
Sources
- Instructions for Form 8949 (2025): https://www.irs.gov/pub/irs-pdf/i8949.pdf
- Publication 550, Investment Income and Expenses (for 2025 returns): https://www.irs.gov/pub/irs-pdf/p550.pdf
Read from the IRS documents linked above on October 17, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.