How to Sell Bonds Before Maturity: Price, Costs, and Taxes

To sell bonds before maturity, you place a sell order through a broker who finds a buyer on the secondary market, accept a price that reflects current interest rates and your bond’s remaining terms, and then report any gain or loss on your next tax return. The exception is U.S. savings bonds, which you cannot sell to anyone and must instead redeem through the Treasury.

Where the Sale Happens

Selling before maturity means selling to another investor, not back to the issuer. That trade takes place on the secondary market, where previously issued debt securities change hands. Corporate bonds, municipal bonds, and marketable Treasury securities (bills, notes, bonds, and TIPS) all trade there.

Two kinds of intermediaries move the trade along. Dealers buy from you out of their own inventory and resell to someone else. Brokers match a seller with a buyer for a commission. For retail investors, both usually sit behind the same brokerage account, which handles finding the counterparty and settling the trade.

Savings Bonds Cannot Be Sold

Series EE and Series I savings bonds have no secondary market. You redeem them with the U.S. Treasury; you cannot transfer them to another investor. You must hold a savings bond for at least 12 months before you can cash it in, with no way to access the money earlier.¹

Redeem between year one and year five and you forfeit the last three months of interest. Redeem an EE or I bond at 18 months, for example, and you receive 15 months of interest. After five years, no penalty applies. Because these bonds are non-transferable, never buy one from a private seller or auction site; the Treasury will not honor a redemption by anyone other than the registered owner or co-owner.²

Selling Treasuries Held at TreasuryDirect

Marketable Treasuries can be sold before maturity, but not directly through TreasuryDirect. To sell, you first transfer the security out to a bank, broker, or dealer, who then executes the trade on the secondary market.³

The transfer requires FS Form 5511, the TreasuryDirect Transfer Request. You will need the receiving firm’s wire name, routing number, and account information. From your TreasuryDirect account, use the ManageDirect tab, select the security, and choose External Transfer.⁴

A 45-day hold applies. You must keep a Treasury marketable security in your TreasuryDirect account for at least 45 days before transferring or selling it, and the hold resets when a reinvestment adds new funds. Four-week bills cannot be sold from TreasuryDirect at all, because they mature before the hold expires.³

What Determines the Price You Receive

Your bond’s price depends first on the gap between its fixed coupon rate and current market interest rates. When rates rise, existing bonds with lower coupons look less attractive and their prices drop. When rates fall, older bonds paying higher fixed interest gain value and can trade above face.

Other factors move the price too:

Time to maturity. Bonds closer to maturity trade nearer face value because there is less time for rates to move against the buyer.
Credit quality. Ratings from agencies such as Moody’s and Standard & Poor’s reflect the issuer’s financial condition. Downgrades push prices lower; upgrades push them higher.
Accrued interest. The buyer pays you for interest that has built up since the last coupon payment but has not yet been distributed, calculated from the last payment date to the settlement date.⁵
Supply and demand. Certain categories, such as munis during periods of high income tax rates, can trade above the level rates alone would justify.

For Treasury Inflation-Protected Securities, principal adjusts up or down with the Consumer Price Index, so the secondary market price reflects both interest rate movements and the current inflation-adjusted principal. When you sell, the adjusted principal, not just the original face value, factors into your proceeds, and any increase in principal during the year you sell may affect your federal taxes.⁶

What It Costs to Sell

Bond trades usually do not carry a flat commission the way stock trades do. Instead, the dealer builds a markup or markdown into the price. Sell to a dealer and the price is a markdown below the prevailing market; buy from one and the price is a markup above what they paid. The quoted price is not necessarily where the bond is trading in the broader market.

FINRA requires markups and markdowns to be fair given market conditions, the expense of the trade, and a reasonable dealer profit.⁷ Under FINRA Rule 2232, dealers must disclose the exact markup or markdown on corporate and agency bond trade confirmations, as both a dollar amount and a percentage, when the dealer also executed an offsetting trade the same day.⁸ Read the confirmation carefully; it is the clearest view of what you actually paid.

The Odd Lot Penalty

Small trades cost more per bond. An odd lot, generally $100,000 or less in par value, draws a wider markup because it is harder for the dealer to resell. Municipal Securities Rulemaking Board data show the effective spread on muni odd-lot trades averaged about 56 basis points, against roughly 18 basis points for block trades of $1 million or more.⁹ If your position is small, weigh that spread when deciding whether selling early is worth it.

Placing the Sale

Gather these details from your brokerage statement or bond documents before you request a quote:

CUSIP number, the nine-character code that identifies the specific bond.¹⁰
Par value and coupon rate.
Maturity date.
Call provisions. Many bonds are callable, meaning the issuer can redeem them early at a set price, and a bond that could be called soon may trade differently than one that cannot.¹¹

You also need a brokerage account set up for fixed-income trades. If you hold physical certificates, expect extra steps: a bond power form assigning ownership, plus a signature guarantee from a financial institution, before the broker will accept the certificates.

Request a bid through the platform or by phone. The bid is what a dealer will pay right now. Compare bids from more than one dealer if you can. Place the sell order once you see a price you accept. Most bond trades are market orders, taking the best available price; limit orders exist for bonds on some platforms but are less common than in stocks.¹² Settlement follows on a T+1 basis as of May 2024, so the bond and cash change hands one business day after the trade.¹³

Taxes on an Early Sale

The difference between your adjusted cost basis and your sale price is a capital gain or loss.¹⁴ Several rules shape how that number is taxed.

Holding Period

Hold the bond one year or less and any gain is short-term, taxed at your ordinary income rate, which can reach 37%.¹⁵ Hold it more than a year and the gain qualifies as long-term, taxed at 0%, 15%, or 20% depending on income. For 2026, the 0% rate applies to single filers with taxable income up to $49,450 ($98,900 for joint filers), and the 20% rate begins above $545,500 for single filers ($613,700 for joint filers). Most sellers land in the 15% bracket.

Losses

A sale below your adjusted basis produces a capital loss. Losses offset capital gains dollar for dollar. Excess losses deduct against other income up to $3,000 per year ($1,500 if married filing separately), and anything beyond that carries forward.¹⁴

Market Discount Bonds

If you bought a bond on the secondary market below face value, part or all of your gain on sale may be taxed as ordinary income rather than at capital gains rates. Federal law treats the gain as ordinary income up to the amount of accrued market discount.¹⁶

A de minimis exception applies when the discount is less than 0.25% of face value multiplied by the full years remaining to maturity at purchase. A bond with 10 years left, for instance, would need a discount of at least 2.5% of face before the market discount rule kicks in. Below that threshold, the gain is treated as a capital gain.

OID and Premium Bonds

Bonds issued below face carry original issue discount. You include part of that discount in income each year, and each inclusion raises your basis, so when you sell early the adjusted basis reduces taxable gain or increases deductible loss.¹⁴ Bonds bought above face carry a premium. You can elect to amortize the premium over the life of the bond, which lowers basis over time and offsets some of the interest income you report each year.¹⁷ Sell a premium bond early without having amortized, and the higher basis may produce a capital loss even at a sale price near face.

Municipal Bonds

Interest on munis is generally excluded from federal gross income.¹⁸ That exclusion covers interest, not capital gains. Sell a muni above your adjusted basis and the gain is taxable, and if you bought at a market discount, the accrued portion of your gain is ordinary income, the same rule that applies to taxable bonds.

Wash Sales

Sell a bond at a loss and buy the same or a substantially identical bond within 30 days before or after the sale, and the IRS disallows the loss.¹⁹ The disallowed amount adds to the basis of the replacement bond, so the deduction is deferred rather than lost, but you cannot claim it in the current year. To harvest the loss cleanly, wait at least 31 days before buying a similar bond.

Net Investment Income Tax

Higher-income sellers may owe an additional 3.8% net investment income tax on bond gains. The surtax applies when modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint). Those thresholds are not indexed to inflation, so they reach more taxpayers over time. Stacked on the 20% long-term rate, the top federal rate on a bond gain can reach 23.8%.

What the 1099-B Will Show

Your broker reports the sale to you and the IRS on Form 1099-B. The form includes the sale date, gross proceeds (accrued interest is reported separately on Form 1099-INT), and, for covered securities, your adjusted basis and whether the gain or loss is short- or long-term. It also reports accrued market discount and any wash sale loss disallowed. Use the numbers to complete Form 8949 and Schedule D. If the bond predates cost-basis reporting requirements or counts as a noncovered security, the broker may not report your basis, and calculating and reporting it falls to you.²⁰

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TreasuryDirect. EE Bonds
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TreasuryDirect. Cash EE or I Savings Bonds
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TreasuryDirect. Selling a Treasury Marketable Security
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TreasuryDirect. Transferring From One System to Another
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FINRA.org. FINRA Rule 11620 – Computation of Interest
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TreasuryDirect. Treasury Inflation-Protected Securities (TIPS)
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FINRA.org. FINRA Rule 2121 – Fair Prices and Commissions
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FINRA.org. Fixed Income Confirmation Disclosure – Frequently Asked Questions
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Municipal Securities Rulemaking Board (MSRB). A Comparison of Transaction Costs for Municipal Securities and Other Fixed-Income Securities
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Investor.gov. CUSIP Number
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FINRA. Callable Bonds – Be Aware That Your Issuer May Come Calling
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FINRA.org. Order Types
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FINRA. Understanding Settlement Cycles – What Does T+1 Mean for You
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Internal Revenue Service. Publication 550 (2024) – Investment Income and Expenses
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Internal Revenue Service. Topic No. 409 – Capital Gains and Losses
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Office of the Law Revision Counsel. 26 U.S. Code 1276 – Disposition Gain Representing Accrued Market Discount Treated as Ordinary Income
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eCFR. 26 CFR 1.171-2 – Amortization of Bond Premium
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Internal Revenue Service. Module B – Introduction to Federal Taxation of Municipal Bonds
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Office of the Law Revision Counsel. 26 U.S. Code 1091 – Loss From Wash Sales of Stock or Securities
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Internal Revenue Service. Instructions for Form 1099-B