I hope this is not too off topic for this Board.

I am new to investing directly in Treasury securities. I live in a state which assesses income taxes with marginal rate of 7%.

I have this year bought a few 3-6 month zero-coupon T Bills at a discount to maturity amount. In the past I invested via Treasury money funds like SNSXX. I decided to buy T-bills to avoid the 34 bp expense of SNSXX.

I understand that the Original Issue Discount that I bought the T-bill for, i.e. the difference between maturity amount and the discounted purchase amount is taxed as ordinary income for Federal income taxes. This OID amount is exempt from state IT.

However, if I sell the security before maturity is the gain reported as OID or capital gain? And if it is reported as capital gain, will it still be exempt from state taxes? My state treats capital gains as ordinary income and charges the same rate on both.

Thanks for your help.
rnam

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