Which statement best describes the tax treatment of the capital gain on sale of a Treasury Bond?

• A. It is tax-free on sale.
• B. It is offsettable for capital gains tax purposes.
• C. It is taxed as ordinary income.
• D. It is exempt from all taxes.

Answer: (B)

When you sell a Treasury bond, any gain or loss is treated under capital gains rules. The difference between the sale price and your cost basis is a capital gain or capital loss, not ordinary income. These gains are taxed at capital gains rates, which depend on how long you held the bond, and they can be offset by other capital losses you realize. In other words, the gain from the sale is offsettable for capital gains tax purposes, reducing the overall tax you owe. The other statements don’t fit because the sale gain isn’t tax-free, isn’t taxed as ordinary income (except that short-term gains follow ordinary rates but still operate within the capital gains framework), and isn’t exempt from all taxes.