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Exam Code: HPE1-H01

Exam Name: Designing HPE Advanced Hybrid IT Solutions

Version: V15.35

Q & A: 208 Questions and Answers

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Which one of the following statements is correct with regard to an individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest?
A. The bond's basis is reduced by the amortization.
B. The bond's basis is increased by the amortization.
C. The amortization is treated as an itemized deduction.
D. The amortization is not treated as a reduction of taxable income.
Answer: A
Choice "c" is correct. The bond's basis is reduced by the amortization of the premium.
Choice "a" is incorrect. For bonds acquired after 12/31/87, the amortization of the premium is an offset to interest income on the bond rather than a separate interest deduction.
Choice "b" is incorrect. The amortization of the premium will reduce taxable income.
Choice "d" is incorrect. The bond's basis will be decreased by the amortization.

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