Paying Taxes on Municipal Bonds: Acquisition Premium

You may not know that there might be a way to reduce the amount of taxes you pay on interest payments you receive from bonds purchased at a premium to face value, and from imputed interest on zero coupon bonds. When you pay an acquisition premium for a bond, the interest payments you receive actually contains interest and a return of principal. In other words, if you receive an interest payment of $5, actually $1 may be a return of principal. This is called amortization.
Under certain circumstances, you can report the interest payments from municipal bonds in such a way that you will owe less taxes on the interest income. Here is a link to an article that will help you understand how to take advantage of this aspect of the tax law.

, , ,

No comments yet.

Leave a Reply