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Interest received from municipal bonds is generally tax-exempt at the federal level (and at state level if purchaser resides in the issuer states). Conversely, does this mean that a purchaser cannot deduct the loss of the premium?

In other words, let's say I buy a muni with a coupon of 5% for a price of 110. If I buy 10 bonds, I will pay $11,000, but I will only receive $10,000 when the bonds mature. Do I get to deduct that $1,000 loss somewhere, or is there no offset since I'm already receiving the interest tax-free?

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up vote 1 down vote accepted

I found my answer here:

Because buyers of premium municipal bonds do not pay taxes on coupon income, they do not receive any tax breaks on the amortization of the premium either.

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