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.
(1) Amortization of premiums on tax‑exempt bonds
by a corporation is mandatory with no deduction allowed in computing state net
(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.