Treasury Regulations · 26 CFR
§ 1.163-7. Deduction for OID on certain debt instruments.
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 163
Cite as 26 CFR § 1.163-7
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- February 2, 1994 by T.D. 8517
- Last amended
- January 12, 2001 by T.D. 8934
- Issued under
- 26 U.S.C. § 163
- Length
- 1,083 words · about 5 min to read
- Cross-references
- cites 6 Code sections and 6 regulations; cited by 13
¶(a) General rule. Except as otherwise provided in paragraph (b) of this section, an issuer (including a transferee) determines the amount of OID that is deductible each year under section 163(e)(1) by using the constant yield method described in § 1.1272-1(b). This determination, however, is made without regard to section 1272(a)(7) (relating to acquisition premium) and § 1.1273-1(d) (relating to de minimis OID). An issuer is permitted a deduction under section 163(e)(1) only to the extent the issuer is primarily liable on the debt instrument. For certain limitations on the deductibility of OID, see sections 163(e) and 1275(b)(2). To determine the amount of interest (OID) that is deductible each year on a debt instrument that provides for contingent payments, see § 1.1275-4.
¶(b) Special rules for de minimis OID—
¶(1) Stated interest. If a debt instrument has a de minimis amount of OID (within the meaning of § 1.1273-1(d)), the issuer treats all stated interest on the debt instrument as qualified stated interest. See §§ 1.446-2(b) and 1.461-1 for the treatment of qualified stated interest.
¶(2) Deduction of de minimis OID on other than a constant yield basis. In lieu of deducting de minimis OID under the general rule of paragraph (a) of this section, an issuer of a debt instrument with a de minimis amount of OID (other than a de minimis amount treated as qualified stated interest under paragraph (b)(1) of this section) may choose to deduct the OID at maturity, on a straight-line basis over the term of the debt instrument, or in proportion to stated interest payments. The issuer makes this choice by reporting the de minimis OID in a manner consistent with the method chosen on the issuer's timely filed Federal income tax return for the taxable year in which the debt instrument is issued.
¶(c) Deduction upon repurchase. Except to the extent disallowed by any other section of the Internal Revenue Code (e.g., section 249) or this paragraph (c), if a debt instrument is repurchased by the issuer for a price in excess of its adjusted issue price (as defined in § 1.1275-1(b)), the excess (repurchase premium) is deductible as interest for the taxable year in which the repurchase occurs. If the issuer repurchases a debt instrument in a debt-for-debt exchange, the repurchase price is the issue price of the newly issued debt instrument (reduced by any unstated interest within the meaning of section 483). However, if the issue price of the newly issued debt instrument is determined under either section 1273(b)(4) or section 1274, any repurchase premium is not deductible in the year of the repurchase, but is amortized over the term of the newly issued debt instrument in the same manner as if it were OID.
¶(d) Choice of accrual periods to determine whether a debt instrument is an applicable high yield discount obligation (AHYDO). Section 163(e)(5) affects an issuer's OID deductions for certain high yield debt instruments that have significant OID. For purposes of section 163(i)(2), which defines significant OID, the issuer's choice of accrual periods to determine OID accruals is used to determine whether a debt instrument has significant OID. See § 1.1275-2(e) for rules relating to the issuer's obligation to disclose certain information to holders.
¶(e) Qualified reopening—
¶(1) In general. In a qualified reopening of an issue of debt instruments, if a holder pays more or less than the adjusted issue price of the original debt instruments to acquire an additional debt instrument, the issuer treats this difference as an adjustment to the issuer's interest expense for the original and additional debt instruments. As provided by paragraphs (e)(2) through (5) of this section, the adjustment is taken into account over the term of the instrument using constant yield principles.
¶(2) Positive adjustment. If the difference is positive (that is, the holder pays more than the adjusted issue price of the original debt instrument), then, with respect to the issuer but not the holder, the difference increases the aggregate adjusted issue prices of all of the debt instruments in the issue, both original and additional.
¶(3) Negative adjustment. If the difference is negative (that is, the holder pays less than the adjusted issue price of the original debt instrument), then, with respect to the issuer but not the holder, the difference reduces the aggregate adjusted issue prices of all of the debt instruments in the issue, both original and additional.
¶(4) Determination of issuer's interest accruals. As of the reopening date, the issuer must redetermine the yield of the debt instruments in the issue for purposes of applying the constant yield method described in § 1.1272-1(b) to determine the issuer's accruals of interest expense over the remaining term of the debt instruments in the issue. This redetermined yield is based on the aggregate adjusted issue prices of the debt instruments in the issue (as determined under this paragraph (e)) and the remaining payment schedule of the debt instruments in the issue. If the aggregate adjusted issue prices of the debt instruments in the issue (as determined under this paragraph (e)) are less than the aggregate stated redemption price at maturity of the instruments (determined as of the reopening date) by a de minimis amount (within the meaning of § 1.1273-1(d)), the issuer may use the rules in paragraph (b) of this section to determine the issuer's accruals of interest expense.
¶(5) Effect of adjustments on issuer's adjusted issue price. The adjustments made under this paragraph (e) are taken into account for purposes of determining the issuer's adjusted issue price under § 1.1275-1(b).
¶(6) Definitions. The terms additional debt instrument, original debt instrument, qualified reopening, and reopening date have the same meanings as in § 1.1275-2(k).
¶(f) Effective dates. This section (other than paragraph (e) of this section) applies to debt instruments issued on or after April 4, 1994. Taxpayers, however, may rely on this section (other than paragraph (e) of this section) for debt instruments issued after December 21, 1992, and before April 4, 1994. Paragraph (e) of this section applies to qualified reopenings where the reopening date is on or after March 13, 2001.
[T.D. 8517, 59 FR 4804, Feb. 2, 1994, as amended by T.D. 8674, 61 FR 30138, June 14, 1996; T.D. 8934, 66 FR 2815, Jan. 12, 2001]
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 163 Interest
- § 1272 Current inclusion in income of original issue discount
- § 249 Limitation on deduction of bond premium on repurchase
- § 483 Interest on certain deferred payments
- § 1273 Determination of amount of original issue discount
- § 1274 Determination of issue price in the case of certain debt instruments issued for property
Regulations it cites
- § 1.1272-1 Current inclusion of OID in income.
- § 1.1273-1 Definition of OID.
- § 1.1275-4 Contingent payment debt instruments.
- § 1.446-2 Method of accounting for interest.
- § 1.1275-1 Definitions.
- § 1.1275-2 Special rules relating to debt instruments.
Cited by 13 other regulations
- § 1.61-12 Income from discharge of indebtedness.
- § 1.108(i)-3 Rules for the deduction of OID.
- § 1.163(j)-1 Definitions.
- § 1.163(j)-4 General rules applicable to C corporations (including REITs, RICs, and members of consolidated groups) and tax-exempt corporations.
- § 1.221-1 Deduction for interest paid on qualified education loans after December 31, 2001.
- § 1.221-2 Deduction for interest due and paid on qualified education loans before January 1, 2002.
- § 1.249-1 Limitation on deduction of bond premium on repurchase.
- § 1.267A-5 Definitions and special rules.
- § 1.446-2 Method of accounting for interest.
- § 1.446-5 Debt issuance costs.
- § 1.1273-2 Determination of issue price and issue date.
- § 1.1275-2 Special rules relating to debt instruments.
- § 1.1502-13 Intercompany transactions.
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Amended by T.D. 8934 (66 FR 2815)
- Amended by T.D. 8674 (61 FR 30138)
- Issued by T.D. 8517 (59 FR 4804)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Itemized Deductions for Individuals and Corporations
Nearby sections
- § 1.163-4 Deduction for original issue discount on certain obligations issued after May 27, 1969.
- § 1.163-5 Denial of interest deduction on certain obligations issued after December 31, 1982, unless issued in registered form.
- § 1.163-5T Denial of interest deduction on certain obligations issued after December 31, 1982, unless issued in registered form (temporary).
- § 1.163-6T Reduction of deduction where section 25 credit taken (temporary).
- § 1.163-7 Deduction for OID on certain debt instruments.
- § 1.163-8T Allocation of interest expense among expenditures (temporary).
- § 1.163-9T Personal interest (temporary).
- § 1.163-10T Qualified residence interest (temporary).
- § 1.163-11 Allocation of certain prepaid qualified mortgage insurance premiums.