In Latin, De Minimis stands for “minimal things” or can be said to be “about minimal things.”
De Minimis is explained to be a tax rule which is responsible for setting the threshold of a discount bond which, in turn, is to be taxed in the form of a capital gain and not in the form of an ordinary income. Going by the De Minimis Rule, a discount that is marked to be less than a quarter-point, for every whole year, from the time it was acquired till its maturity, is considered to be too little for it to be recognized as a market discount for purposes like tax, which is our main focus. In its place, one can say that the accretion starting from the purchase price to the par value must be treated as equal to the capital gain in situations where it is kept for the time span of more than a year.
Allow us to explain the De Minimis Rule in brief –
If one follows the De Minimis Rule, then in a situation where the municipal bond is bought or purchased for a discount as minimum as possible, it can help gain capital tax which is most definitely higher than any tax rate under ordinary circumstances.
By definition, the De Minimis Rule relates to a situation when the redemption of a municipal bond results in more capital gain than an ordinary income. Going to the Internal Revenue Service (IRS), a discount that is minimal is often described as an amount that is less compared to the quarter percentage of the par value, which is mostly seen to be multiplied by the total number of entire whole years, starting from the day the bond was bought till the day of the maturity of the said bond. The minimal discount in such a situation is taken to be too less of a market discount in relation to income tax purposes.
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