Line 32: Deduction for amortizable bond premiums

This deduction is for federally taxable bonds only. For more information on state and local bonds and obligations taxable to New York State, see Form IT-201-I, Instructions for Form IT-201 , or Form IT-203-I, Instructions for Form IT-203, under Line 20 - Interest income on state and local bonds and obligations .

In general, if the amount you pay for a bond is greater than its stated principal amount, the excess is bond premium. You can elect to amortize the premium on taxable bonds. The amortization of the premium is generally an offset to interest income on the bond (reported on Form IT-201 or Form IT-203, line 2) rather than a separate deduction item.

Pre-1998 election to amortize bond premium: Generally, if you first elected to amortize bond premium before 1998, the above treatment of the premium doesn’t apply to bonds you acquired before 1988.

Bonds acquired after October 22, 1986, and before 1988: The amortization of the premium on these bonds is investment interest expense subject to the investment interest limit, unless you chose to treat it as an offset to interest income on the bond.

Bonds acquired before October 23, 1986: The amortization of the premium on these bonds is a miscellaneous itemized deduction not subject to the 2% limit.

Deduction for excess premium: On certain bonds (such as bonds that pay a variable rate of interest or that provide for an interest-free period), the amount of bond premium allocable to a period may exceed the amount of stated interest allocable to the period. If this occurs, treat the excess as a miscellaneous itemized deduction that is not subject to the 2% limit. However, the amount deductible is limited to the amount by which your total interest inclusions on the bond in prior periods exceed the total amount you treated as a bond premium deduction on the bond in prior periods. If any of the excess bond premium cannot be deducted because of the limit, this amount is carried forward to the next period and is treated as bond premium allocable to that period.

Pre-1998 choice to amortize bond premium: If you made the choice to amortize the premium on taxable bonds before 1998, you can deduct the bond premium amortization that is more than your interest income only for bonds acquired during 1998 and later years.

For more information on the deduction for amortizable bond premiums, see Itemized deductions and review the 2017 IRS Publication 529 and the 2017 IRS Publication 550, Investment Income and Expenses .