Form 1099-DA field reference
Form 1099-DA Box 1h: Accrued market discount
What to check
- Confirm the asset is a debt instrument
- Review Pub. 550
- Separate ordinary income from capital gain
Where Box 1h flows on your return
Any accrued market discount reported in Box 1h is generally added to Form 8949 as an adjustment (using the applicable adjustment code) that shifts part of the gain from capital gain treatment to ordinary income, rather than simply widening or narrowing the Box 1f-minus-1g calculation.
How Box 1h works
Box 1h applies only in the narrow case where the digital asset sold is both a covered security and also a debt instrument for federal tax purposes — meaning it represents a loan-like obligation rather than an equity-like token. Most digital assets never trigger this box because most tokens are not debt instruments.
Accrued market discount is the portion of gain attributable to having purchased a debt instrument below its stated redemption value after original issuance. Under longstanding market-discount rules, that portion is treated as ordinary income rather than capital gain when the instrument is later disposed of, regardless of how long you held it.
Because this box depends on classifying the specific digital asset as a debt instrument, review IRS Publication 550's discussion of market discount if Box 1h shows an amount you do not recognize, and confirm with the broker or your own records exactly which position generated it — this is one of the least common boxes on Form 1099-DA and typically applies only to tokenized debt products.
Worked example
Elena buys a tokenized bond-like instrument below its face value and later sells it at a gain. Her broker determines $150 of that gain represents accrued market discount and reports it in Box 1h. Elena reports that $150 as ordinary income rather than capital gain, separately from the remainder of the gain reported normally on Form 8949.
Continue the filing flow
Frequently asked questions
Why does my 1099-DA have an amount in Box 1h when most digital assets don't?
Box 1h only applies when the specific digital asset sold is also classified as a debt instrument for federal tax purposes and is a covered security — most tokens are not debt instruments, so most 1099-DA forms never populate this box.
Is accrued market discount taxed the same as regular capital gain?
No. Accrued market discount reported in Box 1h is generally treated as ordinary income rather than capital gain, even if you held the instrument long enough to otherwise qualify for long-term capital gains treatment.
Where can I read more about how market discount is calculated?
IRS Publication 550, Investment Income and Expenses, explains the market-discount rules that apply to debt instruments, including how the taxable and capital portions of gain are split.