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

摘要

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.