Municipal Bond Forum
On “Hidden Gems in the Muni Market”cont’d #5:
Q
Purchasing premium bonds with a yield advantage to the call as well as to maturity will always provide the best value available. When a premium bond matures at par and you paid over par, don’t you get a capital loss? Would that be another advantage for buying premium bond as long as you adhere to the first sentence?
A
James A. Klotz responds:
The IRS does not allow capital loss treatment for the premium paid since it is understood that the bonds will mature at 100.00 and the declining value of the premium is inherent in the purchase.
If you sell a premium bond prior to maturity, your tax preparer will determine capital gains or losses based on straight line amortization of the premium.
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