Amortizable Bond Premium
- A tax term referring to the excess premium paid over and above the face value of a bond. Depending on the type of bond, the premium can be tax deductible and amortized over the life of the bond on a pro-rata basis.
A bond premium occurs when the price of the bond has increased in the secondary market due to a drop in market interest rates.
Those who invest in taxable premium bonds typically benefit from amortizing the premium, because the amount amortized can be used to offset the interest from the bond, which will reduce the amount of taxable income the investor will have to pay with respect to the bond. The cost basis of the taxable bond is reduced by the amount of premium amortized each year.
There is no deduction possible for bond premiums related to tax-free bonds.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
amortizable premium — The premium paid for a bond debenture, note, certificate, or other evidence of indebtedness which bears interest and is issued by a corporation, government, or political subdivision, including both registered and unregistered bonds. IRC § 171(d) … Ballentine's law dictionary
Treasury Regulation 1.183-2 — is a Treasury Regulation in the United States, outlining the taxes owed from income deriving from non business, non investment activity. Expenses relating to for profit activities, such as business and investment activities, are generally tax… … Wikipedia