Bond/Acquisition Premium

Bonds with acquisition premium is the excess of a debt instrument’s adjusted basis over the debt instrument’s adjusted issue price at that time. A bond issued as OID, can have acquisition premium if the adjusted issue price including OID amount is more than the maturity price. The purpose of the calculation of amortized acquisition premium is to reduce the taxable ordinary income. The regulation requires broker dealers to calculate the acquisition premium for non-taxable securities as well.