SECTION .1400 ‑ AMORTIZATION OF BOND PREMIUMS

 

17 NCAC 05C .1401          PRELIMINARY STATEMENT

If a corporation purchases a bond at more than its face

value, the amount of premium paid may be amortized over the life of the bond.

However, the allowance of a deduction against net income for amortization of

the premium paid depends upon the type of bond purchased by the corporation. 

For example:

(1)           Amortization of premiums on tax‑exempt bonds

by a corporation is mandatory with no deduction allowed in computing state net

income.

(2)           A corporation may at its option amortize the amount

of premiums paid on taxable bonds over the life of the bonds.  If the premium

is not amortized by the corporation, it will constitute part of the basis of

the bond in determining gain or loss at maturity of sale.

(3)           For state income tax purposes, obligations of the

United States or its possessions and obligations of the State of North Carolina

or any of its subdivisions are tax‑exempt.  Interest income received by a

corporation on such obligations is not taxable; however, a corporation must

include in its computation of state net income any gain or loss realized on the

disposal of such obligations.

(4)           Premiums paid on all bonds acquired prior to

January 1, 1963 cannot be amortized but constitute a part of the cost basis of

the bonds in determining gain or loss when the bonds are sold.

 

History Note:        Authority G.S. 105‑130.5; 105‑262;

Eff. February 1, 1976;

Amended Eff. January 1, 1994.