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What are amortizable bond premiums?

Amortizable bond premium refers to the excess amount you paid that is above the value of a bond. For example, you buy a bond for $1,100. When the bond matures, it’s worth $1,000. You’ve paid a $100 premium for the bond, and that premium is considered part of your basis (purchase price) in the bond. In other words, this generally means that each year, over the life of the bond, you use a part of the premium to reduce the amount of interest includible in your income. If you choose to amortize the premium, then you must also reduce your basis in the bond by the amortization for the year.

If you receive tax-exempt interest, you’re required to amortize the premium, and it’s not deductible. However, each year you must reduce your basis in the bond (and tax-exempt interest otherwise reportable on Form 1040, line 8b) by the amortization for the year.

To learn more about amortizable bond premiums, click here.

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