TIPS vs Nominal Treasury Break Even Calculator

Purpose and model boundary

This calculator compares an inflation-protected Treasury (TIPS) with an ordinary, or nominal, Treasury of the same term. Both are bought at par today and held to maturity, with one payment a year reinvested at the bond's own yield. You enter the TIPS real yield, the nominal yield, the years to maturity, the amount invested in each, your federal income tax rate, the inflation you expect and the range of inflation rates to chart. The main result is the break-even inflation: the constant yearly inflation at which both bonds end with the same value. Above it the TIPS ends ahead; below it the nominal bond does. At the inflation you expect, the page also shows how far the TIPS ends ahead of the nominal bond after tax, and the tax a TIPS owner pays on inflation adjustments that are paid in cash only at maturity.

Every figure on this page is computed by the spreadsheet; the page adds nothing to it. To take inflation out of a single return, use the Real vs Nominal Return Calculator; to see what inflation does to a sum of money over time, the Inflation Purchasing Power Calculator; and for the price, yield and interest-rate risk of a bond, the Bond Price Yield Duration Convexity Calculator.

The model is educational. It does not forecast inflation, yields or taxes, and it is not financial, investment, tax or legal advice.

Inputs and units

• TIPS real yield, the yield of the TIPS above inflation, from 0% to 5% a year.
• Nominal Treasury yield, the yield of an ordinary Treasury with the same years to maturity, from 0% to 15% a year. It does not depend on inflation.
• Years to maturity (both bonds), a whole number from 1 to 30.
• Amount invested in each, from 1 to 1,000,000,000 dollars. Both bonds are bought at par, so this is also each bond's face amount.
• Federal income tax rate, from 0% to 60% of the interest. Enter 0 for an account where interest is not taxed.
• Inflation you expect, from 0% to 15% a year. The values at maturity, the after-tax advantage and the phantom tax are read at this rate.
• Lowest and highest inflation to chart, each from 0% to 15% a year, the highest above the lowest. They set the range of the chart and the table.

Every input is required. Money is in US dollars; yields, rates and inflation are yearly percentages.

Governing relationships

Write F for the amount invested, r for the TIPS real yield, n for the nominal yield, T for the years to maturity, τ for the tax rate and π for a constant yearly inflation rate.

• The nominal bond grows at its yield whatever inflation does: it is worth F × (1 + n)^T at maturity.
• The TIPS pays its real yield on a principal that rises with inflation, so at inflation π it earns y(π) = (1 + r)(1 + π) − 1 a year and is worth F × (1 + y(π))^T.
• After tax, each year's income is taxed at τ and the tax is paid from the holding, the TIPS inflation adjustment included, because federal law taxes that adjustment in the year it accrues. Each bond then grows at its yield times (1 − τ): the nominal bond is worth F × (1 + n(1 − τ))^T and the TIPS F × (1 + y(π)(1 − τ))^T.

The break-even inflation is the π at which the two values are equal:

break-even inflation = (1 + n) / (1 + r) − 1

Tax does not move it. Both bonds are taxed every year on all the income they accrue, at one rate, so tax scales both yields alike and they still cross where y(π) = n. Tax changes how much you keep, not where the lines cross; the workbook finds the break-even after tax by its own search and returns it with the other results to the API and MCP.

The phantom tax is worked out for the TIPS you buy today, at the inflation you expect, without reinvestment. In year t its principal is F × (1 + π)^t; the rise over the year is the inflation adjustment, taxed that year but paid in cash only at maturity, and the coupon is r times the year's principal. The phantom tax is τ times the sum of the adjustments over the years, which is τ × F × ((1 + π)^T − 1). When a year's tax on the coupon and the adjustment together is more than that year's coupon, the difference is paid from elsewhere; the sum of those differences is the tax the TIPS's own coupons do not cover.

Calculation sequence

The spreadsheet first checks every input. It then finds the break-even inflation twice, before and after tax, each by 48 halvings of the bracket from −10% to 30% inflation, with no iterative calculation and no solver, and compares both with the closed form above. It builds the table of 25 evenly spaced inflation rates from the lowest to the highest you chart, adds the break-even as a 26th row when it lies inside that range (otherwise the highest rate is repeated) and sorts the rows. For each row it computes both bonds' values at maturity before and after tax. Finally it reads the values at the inflation you expect, works out the phantom tax year by year, and runs a block of consistency checks before the status is returned.

Outputs and interpretation

The headline is the break-even inflation. Beside it are, at the inflation you expect, the TIPS's value at maturity after tax minus the nominal bond's (negative when the nominal bond ends ahead), and the tax on TIPS inflation adjustments you receive only at maturity. The table shows each inflation rate with the four values at maturity and the TIPS minus nominal after tax. The break-even after tax, the four values at maturity at your expected inflation, the tax the TIPS's coupons do not cover and the workbook's self-check are returned to the API and MCP.

With the default inputs, 10,000 dollars in a 10-year TIPS at a 1.8% real yield against 10,000 dollars in a 10-year Treasury at 4.3%, the break-even inflation is 1.043 / 1.018 − 1, about 2.46% a year. At the 2.5% you expect, slightly above it, the TIPS ends at 15,300.88 dollars before tax against the nominal bond's 15,235.02; after a 24% tax both are lower, 13,838.71 against 13,792.97, and the TIPS is 45.75 dollars ahead. Over the ten years the TIPS owner pays 672.20 dollars of tax on inflation adjustments not yet received; each year's coupon covers that year's tax, so none comes from elsewhere. In a tax-free account the same bonds cross at the same 2.46%. In the short example, a 5-year TIPS at a 0.5% real yield with 3.5% inflation expected, the small coupon does not cover the tax, and 239.54 dollars of the 450.45 dollars of phantom tax is paid from elsewhere.

The chart draws both bonds' values at maturity across the inflation range: the nominal lines are flat, because the nominal bond ignores inflation, and the TIPS lines rise with it. The after-tax lines are dashed. The dashed vertical rule marks the break-even, where the lines cross; when the break-even lies outside the range you chart, there is no rule and the status says so.

Validation and status logic

The workbook evaluates the conditions below from top to bottom and returns the first matching status.

NOT VALID is a refusal, not a numeric answer: every number reads zero and the table is empty. CHECK accompanies a computed result but calls for the stated review. The self-check is reported separately as arithmetic-integrity evidence; it does not replace this ordered status chain.

Assumptions and limitations

Each bond pays once a year, at the end of the year, and its payments are reinvested at its own yield; real Treasuries pay twice a year and use an exact day count. Inflation is one constant rate for the whole term. Both bonds are bought at par and held to maturity, so prices other than par, auctions, spreads and selling before maturity are not modelled. Deflation and the TIPS principal floor are outside the model, and so are negative real yields, which a par bond cannot represent. Interest on Treasury securities is exempt from state and local income tax, so only a federal tax is applied, at one flat rate on all the income, with no brackets. Amounts are nominal dollars.

Restrictions and non-computing states

This calculator enforces its numeric limits before it accepts a result. Real yields stay from 0% to 5% and every inflation rate from 0% to 15%, so the break-even always lies inside the workbook's search bracket of −10% to 30%. The years to maturity are a whole number, and the highest inflation to chart must be above the lowest.

Errors and warnings

A request rejected by the page's input limits is not a computed result. A transport or service failure cannot establish a fresh workbook answer. Review the workbook's References and Disclaimer, and check any decision with a qualified professional before using a result for a real investment.

Sources and further reading

The yields, the tax rate and the inflation rates come from the inputs, not market data: the model is compound growth and simple arithmetic, and it uses no table, rate or figure from any publication. The workbook's References sheet identifies the sources below. The links explain the rules the model follows; they do not endorse this calculator.

• IRS Publication 550, Investment Income and Expenses (2025), "Inflation-Indexed Debt Instruments", explains that the holder of an inflation-indexed debt instrument reports any increase in its inflation-adjusted principal as original issue discount for the year in which it occurs, which is why the calculator taxes the TIPS inflation adjustment as it accrues although it is paid only at maturity. Its section "U.S. Treasury Bills, Notes, and Bonds" says that interest on these securities is exempt from all state and local income taxes, which is why the calculator applies only a federal rate (retrieved 2026-10-18).
• Microsoft Support's SMALL and SUMPRODUCT documentation describe the functions the workbook uses to sort the table of inflation rates and to check it.

The break-even and the values at maturity follow from the relationships the methodology states; the workbook checks its own search against the closed form.

This is an educational estimate, not financial, investment, tax or legal advice. Inflation is not constant, bonds sold before maturity can lose value, and tax rules differ from person to person; check any decision with a qualified professional.