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?