Municipal Bond Forum
Accounting for a premium
Q
I understand the point you made in your article, “The Smart Buy in Today’s Market,” comparing a premium municipal bond yield to a new bond selling at par yield. How does the IRS require that I account for a premium on my tax return?
A
James A. Klotz responds:
The bond premium must be amortized. There is no tax loss at maturity, since the bonds maturing at par was the assumption at the time of purchase. There can, however, be a gain or loss based on the amortized value if sold prior to maturity.
This is a conceptual explanation of premium bond taxation. Keep in mind that we are municipal bond specialists, not accountants. It is important to consult your tax professional for any specific application.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.