7645. Is premium paid for a tax-exempt bond deductible? Must basis in a tax-exempt bond be reduced by bond premium?Nuco Employeercline202014-10-01T14:17:00Z2014-10-01T14:17:00Z11811034Summit Business Media82121314Site Map/Investments/Bonds/Government/Municipal BondsTaxFactsDefaultArticle2007-01-30T00:00:00Z121571126-00-tf2.xml1126.00;#1863;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2Is premium paid for a tax-exempt bond deductible? Must basis in a tax-exempt bond be reduced by bond premium?17500.0000000000TaxFactsDefaultArticle2010-01-14T22:25:34ZSBMEDIA\moss-admin7645. Is premium paid for a tax-exempt bond deductible? Must basis in a tax-exempt bond be reduced by bond premium?An individual who owns any fully tax-exempt interest bearing bond (or debenture, note, certificate, or other evidence of indebtedness) must amortize any premium paid for the bond, but the part of the premium allocable to the year is not deductible.IRC Sec. 171; Treas. Reg. §1.171-1(c). (The premium paid, in effect, reduces the annual interest; therefore, because the tax-free interest received each year represents in part a tax-free return of premium, the premium is not deductible). Regulations in effect for bonds acquired before March 2, 1998 (or held before a taxable year containing March 2, 1998) provided substantially similar rules. See Q 7646 for an explanation of the effective date for final regulations under IRC Section 171. The individual must reduce his or her basis each year by the amount of premium allocable to the year.IRC Sec. 1016(a)(5).For an explanation of how the annual amount of amortization is calculated, see Q 7646.