Buying individual bonds at a premium and taxes

brian · Post by **brian** » Sat Jun 30, 2012 8:58 pm

I am considering buying some individual short term corporate bonds. In the secondary market, most sell at a premium. I would like to amortize the loss over each year I receive interest. How difficult (or even possible) is it to use tax software, such as H&R Block, to amortize the loss?

epoch707 · Post by **epoch707** » Mon Jul 09, 2012 5:33 pm

Hi, I am just curious, what is your strategy in terms of buying corporates? The rates are so low, you are better off buying municipals in the second market. How many bonds were you looking to purchase?
If you are short term (less than a year), I don't know if you think getting an extra 20 bps over money market funds is worth it, unless you have size like $1 million. I wouldn't mess with this if I were you, but then again, I wouldn't know your circumstance.
BTW, my background is fixed income investments

brian · Post by **brian** » Mon Jul 09, 2012 10:59 pm

My guess is that I would be laddering out for about three years with maybe 100k or so with about 5k per bond. I would be buying in about the A1 to A3 rating area. What is the reason you think munis are a better buy (aside from the obvious tax consequences).

Hoplite · Post by **Hoplite** » Tue Jul 10, 2012 12:14 am

If you're buying through a large brokerage, most will download commercial bond tax info to TurboTax (I don't know about HR Block), with premiums already amortized unless you tell them not to do it. Otherwise, it's probably hand calculations, or an Excel program such as the one available here:

http://www.cpajournal.com/bondamor.htm

epoch707 · Post by **epoch707** » Fri Jul 13, 2012 10:39 pm

Hi, if you check out the yeilds with comparable muni and corporate maturities, you will see that munis will have higher yeilds at safer credit risk. But then again, I don't have the retail list of the larger brokers, but I actually trade the bonds, so I see higher yeilds.
Rather than buy GE bonds 2 years out and get XX yeild, but AAA texas GO bonds with a much higher yeild. But then again, I can get this for my clients, I don't know how much the yeilds are watered down when you buy from scottrade or another broker for example.
In order to even consider buying bonds, you need to look at the treasury yeild curve and compare the yeild premium. I can go on and onm, but safe to say, you definetly need to know what you are doing so you can maximize yeild and lower risk. maybe a CD or money market is good for the rest