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In the Age of a 3.8 Percent Net Investment Income Tax, It’s Still Advisable to Amortize Bond Premiums  


Author:  Larry  Witner.; MaryElla  Gainor .


Source: Volume 31, Number 02, Winter 2014 , pp.51-60(10)




Journal of Taxation of Investments

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Abstract: 

Before 2013, high-income investors paid income tax rates of 33 percent and 35 percent on the interest from corporate bonds. Given these tax rates, when taxpayers purchased corporate bonds at a premium, it was advisable to amortize the premium. Beginning in 2013, high-income investors are also subject to a Net Investment Income Tax (NIIT). Should they still amortize a premium? This article summarizes NIIT, presents bond premium amortization requirements, and considers a hypothetical high-income investor. The model presented concludes that it is advisable to amortize the premium.

Keywords: high-income investor, amortization, bond, premium, NIIT, net investment income tax

Affiliations:  1: Bryant University; 2: Bryant University.

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