Saturday, March 19, 2005
Bond Premium ("Taxation of Municipal Bonds")
If a tax-exempt bond is purchased at a premium (i.e., at a price in excess of the face amount of the bond), whether at original issue or in the secondary market, the bond premium is amortized over the remaining term of the bond using the same constant yield to maturity method discussed above under “Original Issue Discount.” The amount of bond premium amortized each year is not deductible by the holder but instead reduces the holder's tax basis.
If a tax-exempt bond is purchased at a premium (i.e., at a price in excess of the face amount of the bond), whether at original issue or in the secondary market, the bond premium is amortized over the remaining term of the bond using the same constant yield to maturity method discussed above under “Original Issue Discount.” The amount of bond premium amortized each year is not deductible by the holder but instead reduces the holder's tax basis.
