As I understand it, if taxable bond premium is not amortized, it becomes a capital loss on redemption, whereas the amortized premium offsets ordinary income. If so, amortization allows capital loss to be converted to ordinary loss. Also, my understanding is that the irrevocable election to amortize can only be made on a timely filed return, not an amended return. Am I correct on these points?
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Evan Appelman, EA -
On an individual bond you are wrong. The premium isn't a capital loss.
On a packaged UIT that invests in individual bonds - you would be correct. -
Can you support that?
If the unamortized premium is added to basis, it will presumably be recovered as capital loss when the bond is redeemed.Evan Appelman, EAComment
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