J

#### Jay

original post for 10 days. Maybe this is an area where

there's no general interest for some reason. __

IRS Publication 550 talks about premium amortization for

taxable bonds. I've learned how to calculate the

amortization in normal cases of taxable bonds held to

maturity (see below), but have two questions about the

details.

First, it's common to buy a bond between interest payment

dates. For example, suppose a bond pays interest each

January and July, but you buy it in May. Is a special

calculation required for the initial short May-to-July

interval? Or is it ok to calculate the amortization the same

as when the bond is held the entire six months?

Second, amortizing is optional for taxable bonds. Suppose

you chose not to amortize before, but to start amortizing

for the 2003 tax year. How do you do the calculation for a

bond that you could've started amortizing in 2002? Do you

start with the old original cost and amortize the entire

premium over the shorter interval from 2003 to maturity? Or

do you consider 2002 to be a lost opportunity, and end up

later (at maturity) with a capital gain equal to the

calculated (but not used) 2002 amortization amount?

Thanks in advance!

________________________

This is "below":

There's an Excel template for "Bond Amortization" at

http://office.microsoft.com/templates/

under "personal finance." Fill in the first four parameters,

then use "goal seek" to calculate the "effective rate" that

makes the final "carrying amount" value equal to the "face

value."