AN ACT CONCERNING THE AMORTIZABLE BOND PREMIUM SUBTRACTION FOR PURPOSES OF THE PERSONAL INCOME TAX.

House of Representatives
HB5445 / File No. 668 1

General Assembly File No. 668
February Session, 2026 House Bill No. 5445

House of Representatives, April 16, 2026

The Committee on Finance, Revenue and Bonding reported
through REP. HORN of the 64th Dist., Chairperson of the
Committee on the part of the House, that the bill ought to pass.

AN ACT CONCERNING THE AMORTIZABLE BOND PREMIUM
SUBTRACTION FOR PURPOSES OF THE PERSONAL INCOME TAX.
Be it enacted by the Senate and House of Representatives in General
Assembly convened:

Section 1. Subparagraph (B) of subdivision (20) of subsection (a) of 1
section 12-701 of the 2026 supplement to the general statutes is repealed 2
and the following is substituted in lieu thereof (Effective January 1, 2027, 3
and applicable to taxable years commencing on or after January 1, 2027): 4
(B) There shall be subtracted therefrom: 5
(i) To the extent properly includable in gross income for federal 6
income tax purposes, any income with respect to which taxation by any 7
state is prohibited by federal law; 8
(ii) To the extent allowable under section 12 -718, exempt dividends 9
paid by a regulated investment company; 10
(iii) To the extent properly includable in gross income for federal 11
income tax purposes, the amount of any refund or credit for 12
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overpayment of income taxes imposed by this state, or any other state 13
of the United States or a political subdivision thereof, or the District of 14
Columbia; 15
(iv) To the extent properly includable in gross income for federal 16
income tax purposes and not otherwise subtracted from federal 17
adjusted gross income pursuant to clause (x) of this subparagraph in 18
computing Connecticut adjusted gross income, any tier 1 railroad 19
retirement benefits; 20
(v) To the extent any additional allowance for depreciation under 21
Section 168(k) of the Internal Revenue Code for property placed in 22
service after September 27, 2017, was added to federal adjusted gross 23
income pursuant to subparagraph (A)(ix) of this subdivision in 24
computing Connecticut adjusted gross income, twenty -five per cent of 25
such additional allowance for depreciation in each of the four 26
succeeding taxable years; 27
(vi) To the extent properly includable in gross income for federal 28
income tax purposes, any interest income from obligations issued by or 29
on behalf of the state of Connecticut, any political subdivision thereof, 30
or public instrumentality, state or local authority, district or similar 31
public entity created under the laws of the state of Connecticut; 32
(vii) To the extent properly includable in determining the net gain or 33
loss from the sale or other disposition of capital assets for federal income 34
tax purposes, any gain from the sale or exchange of obligations issued 35
by or on behalf of the state of Connecticut, any political subdivision 36
thereof, or public instrumentality, state or local authority, district or 37
similar public entity created under the laws of the state of Connecticut, 38
in the income year such gain was recognized; 39
(viii) (I) Any interest on indebtedness incurred or continued to 40
purchase or carry obligations or securities the interest on which is 41
subject to tax under this chapter but exempt from federal income tax, to 42
the extent that such interest on indebtedness is not deductible in 43
determining federal adjusted gross income and is attributable to a trade 44
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or business carried on by such individual, and (II) the amortizable bond 45
premium for the taxable year on any bond the interest on which is 46
subject to tax under this chapter but exempt from federal income tax, to 47
the extent that such premiums are not deductible in determining federal 48
adjusted gross income; 49
(ix) Ordinary and necessary expenses paid or incurred during the 50
taxable year for the production or collection of income which is subject 51
to taxation under this chapter but exempt from federal income tax, or 52
the management, conservation or maintenance of property held for the 53
production of such income, [and the amortizable bond premium for the 54
taxable year on any bond the interest on which is subject to tax under 55
this chapter but exempt from federal income tax,] to the extent that such 56
expenses [and premiums ] are not deductible in determining federal 57
adjusted gross income and are attributable to a trade or business carried 58
on by such individual; 59
(x) (I) For taxable years commencing prior to January 1, 2019, for a 60
person who files a return under the federal income tax as an unmarried 61
individual whose federal adjusted gross income for such taxable year is 62
less than fifty thousand dollars, or as a married individual filing 63
separately whose federal adjusted gross income for such taxable year is 64
less than fifty thousand dollars, or for a husband and wife who file a 65
return under the federal income tax as married individuals filing jointly 66
whose federal adjusted gross income for such taxable year is less than 67
sixty thousand dollars or a person who files a return under the federal 68
income tax as a head of household whose federal adjusted gross income 69
for such taxable year is less than sixty thousand dollars, an amount 70
equal to the Social Security benefits includable for federal income tax 71
purposes; 72
(II) For taxable years commencing prior to January 1, 2019, for a 73
person who files a return under the federal income tax as an unmarried 74
individual whose federal adjusted gross income for such taxable year is 75
fifty thousand dollars or more, or as a married individual filing 76
separately whose federal adjusted gross income for such taxable year is 77
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fifty thousand dollars or more, or for a husband and wife who file a 78
return under the federal income tax as married individuals filing jointly 79
whose federal adjusted gross income from such taxable year is sixty 80
thousand dollars or more or for a person who files a return under the 81
federal income tax as a head of household whose federal adjusted gross 82
income for such taxable year is sixty thousand dollars or more, an 83
amount equal to the difference between the amount of Social Security 84
benefits includable for federal income tax purposes and the lesser of 85
twenty-five per cent of the Social Security benefits received during the 86
taxable year, or twenty -five per cent of the excess described in Section 87
86(b)(1) of the Internal Revenue Code; 88
(III) For the taxable year commencing January 1, 2019, and each 89
taxable year thereafter, for a person who files a return under the federal 90
income tax as an unmarried individual whose federal adjusted gross 91
income for such taxable year is less than seventy-five thousand dollars, 92
or as a married individual filing separately whose federal adjusted gross 93
income for such taxable year is less than seventy-five thousand dollars, 94
or for a husband and wife who file a return under the federal income tax 95
as married individuals filing jointly whose federal adjusted gross 96
income for such taxable year is less than one hundred thousand dollars 97
or a person who files a return under the federal income tax as a head of 98
household whose federal adjusted gross income for such taxable year is 99
less than one hundred thousand dollars, an amount equal to the Social 100
Security benefits includable for federal income tax purposes; and 101
(IV) For the taxable year commencing January 1, 2019, and each 102
taxable year thereafter, for a person who files a return under the federal 103
income tax as an unmarried individual whose federal adjusted gross 104
income for such taxable year is seventy -five thousand dollars or more, 105
or as a married individual filing separately whose federal adjusted gross 106
income for such taxable year is seventy -five thousand dollars or more, 107
or for a husband and wife who file a return under the federal income tax 108
as married individuals filing jointly whose federal adjusted gross 109
income from such taxable year is one hundred thousand dollars or more 110
or for a person who files a return under the federal income tax as a head 111
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of household whose federal adjusted gross income for such taxable year 112
is one hundred thousand dollars or more, an amount equal to the 113
difference between the amount of Social Security benefits includable for 114
federal income tax purposes and the lesser of twenty-five per cent of the 115
Social Security benefits received during the taxable year, or twenty-five 116
per cent of the excess described in Section 86(b)(1) of the Internal 117
Revenue Code; 118
(xi) To the extent properly includable in gross income for federal 119
income tax purposes, any amount rebated to a taxpayer pursuant to 120
section 12-746; 121
(xii) To the extent properly includable in the gross income for federal 122
income tax purposes of a designated beneficiary, any distribution to 123
such beneficiary from any qualified state tuition program, as defined in 124
Section 529(b) of the Internal Revenue Code, established and 125
maintained by this state or any official, agency or instrumentality of the 126
state; 127
(xiii) To the extent allowable under section 12 -701a, contributions to 128
accounts established pursuant to any qualified state tuition program, as 129
defined in Section 529(b) of the Internal Revenue Code, established and 130
maintained by this state or any official, agency or instrumentality of the 131
state; 132
(xiv) To the extent properly includable in gross income for federal 133
income tax purposes, the amount of any Holocaust victims' settlement 134
payment received in the taxable year by a Holocaust victim; 135
(xv) To the extent properly includable in the gross income for federal 136
income tax purposes of a designated beneficiary, as defined in section 137
3-123aa, interest, dividends or capital gains earned on contributions to 138
accounts established for the designated beneficiary pursuant to the 139
Connecticut Homecare Option Program for the Elderly established by 140
sections 3-123aa to 3-123ff, inclusive; 141
(xvi) To the extent properly includable in gross income for federal 142
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income tax purposes, any income received from the United States 143
government as retirement pay for a retired member of (I) the Armed 144
Forces of the United States, as defined in Section 101 of Title 10 of the 145
United States Code, or (II) the National Guard, as defined in Section 101 146
of Title 10 of the United States Code; 147
(xvii) To the extent properly includable in gross income for federal 148
income tax purposes for the taxable year, any income from the discharge 149
of indebtedness in connection with any reacquisition, after December 150
31, 2008, and before January 1, 2011, of an applicable debt instrument or 151
instruments, as those terms are defined in Section 108 of the Internal 152
Revenue Code, as amended by Section 1231 of the American Recovery 153
and Reinvestment Act of 2009, to the extent any such income was added 154
to federal adjusted gross income pursuant to subparagraph (A)(xi) of 155
this subdivision in computing Connecticut adjusted gross income for a 156
preceding taxable year; 157
(xviii) To the extent not deductible in determining federal adjusted 158
gross income, the amount of any contribution to a manufacturing 159
reinvestment account established pursuant to section 32 -9zz in the 160
taxable year that such contribution is made; 161
(xix) To the extent properly includable in gross income for federal 162
income tax purposes, (I) for the taxable year commencing January 1, 163
2015, ten per cent of the income received from the state teachers' 164
retirement system, (II) for the taxable years commencing January 1, 165
2016, to January 1, 2020, inclusive, twenty -five per cent of the income 166
received from the state teachers' retirement system, and (III) for the 167
taxable year commencing January 1, 2021, and each taxable year 168
thereafter, fifty per cent of the income received from the state teachers' 169
retirement system or, for a taxpayer whose federal adjusted gross 170
income does not exceed the applicable threshold under clause (xx) of 171
this subparagraph, the percentage pursuant to said clause of the income 172
received from the state teachers' retirement system, whichever 173
deduction is greater; 174
(xx) To the extent properly includable in gross income for federal 175
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income tax purposes, except for retirement benefits under clause (iv) of 176
this subparagraph and retirement pay under clause (xvi) of this 177
subparagraph, for a person who files a return under the federal income 178
tax as an unmarried individual whose federal adjusted gross income for 179
such taxable year is less than seventy -five thousand dollars, or as a 180
married individual filing separately whose federal adjusted gross 181
income for such taxable year is less than seventy-five thousand dollars, 182
or as a head of household whose federal adjusted gross income for such 183
taxable year is less than seventy-five thousand dollars, or for a husband 184
and wife who file a return under the federal income tax as married 185
individuals filing jointly whose federal adjusted gross income for such 186
taxable year is less than one hundred thousand dollars, (I) for the taxable 187
year commencing January 1, 2019, fourteen per cent of any pension or 188
annuity income, (II) for the taxable year commencing January 1, 2020, 189
twenty-eight per cent of any pension or annuity income, (III) for the 190
taxable year commencing January 1, 2021, forty -two per cent of any 191
pension or annuity income, and (IV) for the taxable years commencing 192
January 1, 2022, and January 1, 2023, one hundred per cent of any 193
pension or annuity income; 194
(xxi) To the extent properly includable in gross income for federal 195
income tax purposes, except for retirement benefits under clause (iv) of 196
this subparagraph and retirement pay under clause (xvi) of this 197
subparagraph, any pension or annuity income f or the taxable year 198
commencing on or after January 1, 2024, and each taxable year 199
thereafter, in accordance with the following schedule, for a person who 200
files a return under the federal income tax as an unmarried individual 201
whose federal adjusted gross income for such taxable year is less than 202
one hundred thousand dollars, or as a married individual filing 203
separately whose federal adjusted gross income for such taxable year is 204
less than one hundred thousand dollars, or as a head of household 205
whose federal adjusted gross income for such taxable year is less than 206
one hundred thousand dollars: 207
T1 Federal Adjusted Gross Income Deduction
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T2 Less than $75,000 100.0%
T3 $75,000 but not over $77,499 85.0%
T4 $77,500 but not over $79,999 70.0%
T5 $80,000 but not over $82,499 55.0%
T6 $82,500 but not over $84,999 40.0%
T7 $85,000 but not over $87,499 25.0%
T8 $87,500 but not over $89,999 10.0%
T9 $90,000 but not over $94,999 5.0%
T10 $95,000 but not over $99,999 2.5%
T11 $100,000 and over 0.0%

(xxii) To the extent properly includable in gross income for federal 208
income tax purposes, except for retirement benefits under clause (iv) of 209
this subparagraph and retirement pay under clause (xvi) of this 210
subparagraph, any pension or annuity income for the taxable year 211
commencing on or after January 1, 2024, and each taxable year 212
thereafter, in accordance with the following schedule for married 213
individuals who file a return under the federal income tax as married 214
individuals filing jointly whose federal adjusted gross income for such 215
taxable year is less than one hundred fifty thousand dollars: 216
T12 Federal Adjusted Gross Income Deduction
T13 Less than $100,000 100.0%
T14 $100,000 but not over $104,999 85.0%
T15 $105,000 but not over $109,999 70.0%
T16 $110,000 but not over $114,999 55.0%
T17 $115,000 but not over $119,999 40.0%
T18 $120,000 but not over $124,999 25.0%
T19 $125,000 but not over $129,999 10.0%
T20 $130,000 but not over $139,999 5.0%
T21 $140,000 but not over $149,999 2.5%
T22 $150,000 and over 0.0%

(xxiii) The amount of lost wages and medical, travel and housing 217
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expenses, not to exceed ten thousand dollars in the aggregate, incurred 218
by a taxpayer during the taxable year in connection with the donation 219
to another person of an organ for organ transplantation occurring on or 220
after January 1, 2017; 221
(xxiv) To the extent properly includable in gross income for federal 222
income tax purposes, the amount of any financial assistance received 223
from the Crumbling Foundations Assistance Fund or paid to or on 224
behalf of the owner of a residential building pursuant to sections 8 -442 225
and 8-443; 226
(xxv) To the extent properly includable in gross income for federal 227
income tax purposes, the amount calculated pursuant to subsection (b) 228
of section 12-704g for income received by a general partner of a venture 229
capital fund, as defined in 17 CFR 275.203(l)-1, as amended from time to 230
time; 231
(xxvi) To the extent any portion of a deduction under Section 179 of 232
the Internal Revenue Code was added to federal adjusted gross income 233
pursuant to subparagraph (A)(xiv) of this subdivision in computing 234
Connecticut adjusted gross income, twenty -five per cent of such 235
disallowed portion of the deduction in each of the four succeeding 236
taxable years; 237
(xxvii) To the extent properly includable in gross income for federal 238
income tax purposes, for a person who files a return under the federal 239
income tax as an unmarried individual whose federal adjusted gross 240
income for such taxable year is less than seventy-five thousand dollars, 241
or as a married individual filing separately whose federal adjusted gross 242
income for such taxable year is less than seventy-five thousand dollars, 243
or as a head of household whose federal adjusted gross income for such 244
taxable year is less than seventy-five thousand dollars, or for a husband 245
and wife who file a return under the federal income tax as married 246
individuals filing jointly whose federal adjusted gross income for such 247
taxable year is less than one hundred thousand dollars, for the taxable 248
year commencing January 1, 2023, twenty-five per cent of any 249
distribution from an individual retirement account other than a Roth 250
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individual retirement account; 251
(xxviii) To the extent properly includable in gross income for federal 252
income tax purposes, for a person who files a return under the federal 253
income tax as an unmarried individual whose federal adjusted gross 254
income for such taxable year is less than one hundred thousand dollars, 255
or as a married individual filing separately whose federal adjusted gross 256
income for such taxable year is less than one hundred thousand dollars, 257
or as a head of household whose federal adjusted gross income for such 258
taxable year is less than one hundred thousand dollars, (I) for the taxable 259
year commencing January 1, 2024, fifty per cent of any distribution from 260
an individual retirement account other than a Roth individual 261
retirement account, (II) for the taxable year commencing January 1, 2025, 262
seventy-five per cent of any distribution from an individual retirement 263
account other than a Roth individual retirement account, and (III) for 264
the taxable year commencing January 1, 2026, and each taxable year 265
thereafter, any distribution from an individual retirement account other 266
than a Roth individual retirement account. The subtraction under this 267
clause shall be made in accordance with the following schedule: 268
T23 Federal Adjusted Gross Income Deduction
T24 Less than $75,000 100.0%
T25 $75,000 but not over $77,499 85.0%
T26 $77,500 but not over $79,999 70.0%
T27 $80,000 but not over $82,499 55.0%
T28 $82,500 but not over $84,999 40.0%
T29 $85,000 but not over $87,499 25.0%
T30 $87,500 but not over $89,999 10.0%
T31 $90,000 but not over $94,999 5.0%
T32 $95,000 but not over $99,999 2.5%
T33 $100,000 and over 0.0%

(xxix) To the extent properly includable in gross income for federal 269
income tax purposes, for married individuals who file a return under 270
the federal income tax as married individuals filing jointly whose 271
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HB5445 / File No. 668 11

federal adjusted gross income for such taxable year is less than one 272
hundred fifty thousand dollars, (I) for the taxable year commencing 273
January 1, 2024, fifty per cent of any distribution from an individual 274
retirement account other than a Roth individual retirement account, (II) 275
for the taxable year commencing January 1, 2025, seventy -five per cent 276
of any distribution from an individual retirement account other than a 277
Roth individual retirement account, and (III) for the taxable year 278
commencing January 1, 2026, and each taxable year thereafter, any 279
distribution from an individual retirement account other than a Roth 280
individual retirement account. The subtraction under this clause shall 281
be made in accordance with the following schedule: 282
T34 Federal Adjusted Gross Income Deduction
T35 Less than $100,000 100.0%
T36 $100,000 but not over $104,999 85.0%
T37 $105,000 but not over $109,999 70.0%
T38 $110,000 but not over $114,999 55.0%
T39 $115,000 but not over $119,999 40.0%
T40 $120,000 but not over $124,999 25.0%
T41 $125,000 but not over $129,999 10.0%
T42 $130,000 but not over $139,999 5.0%
T43 $140,000 but not over $149,999 2.5%
T44 $150,000 and over 0.0%

(xxx) To the extent properly includable in gross income for federal 283
income tax purposes, for the taxable year commencing January 1, 2022, 284
the amount or amounts paid or otherwise credited to any eligible 285
resident of this state under (I) the 2020 Earned Income Tax Credit 286
enhancement program from funding allocated to the state through the 287
Coronavirus Relief Fund established under the Coronavirus Aid, Relief, 288
and Economic Security Act, P.L. 116 -136, and (II) the 2021 Earned 289
Income Tax Credit enhancement program from funding allocated to the 290
state pursuant to Section 9901 of Subtitle M of Title IX of the American 291
Rescue Plan Act of 2021, P.L. 117-2; 292
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(xxxi) For the taxable year commencing January 1, 2023, and each 293
taxable year thereafter, for a taxpayer licensed under the provisions of 294
chapter 420f or 420h, the amount of ordinary and necessary expenses 295
that would be eligible to be claimed as a deduction for federal income 296
tax purposes under Section 162(a) of the Internal Revenue Code but that 297
are disallowed under Section 280E of the Internal Revenue Code 298
because marijuana is a controlled substance under the federal 299
Controlled Substance Act; 300
(xxxii) To the extent properly includable in gross income for federal 301
income tax purposes, f or the taxable year commencing on or after 302
January 1, 2025, and each taxable year thereafter, any common stock 303
received by the taxpayer during the taxable year under a share plan, as 304
defined in section 12-217ss; 305
(xxxiii) To the extent properly includable in gross income for federal 306
income tax purposes, the amount of any student loan reimbursement 307
payment received by a taxpayer pursuant to section 10a-19m; 308
(xxxiv) Contributions to an ABLE account established pursuant to 309
sections 3-39k to 3-39q, inclusive, not to exceed five thousand dollars for 310
each individual taxpayer or ten thousand dollars for taxpayers filing a 311
joint return; 312
(xxxv) To the extent properly includable in gross income for federal 313
income tax purposes, the amount of any payment received pursuant to 314
subsection (c) of section 3-122a; 315
(xxxvi) For an account holder, as defined in section 12-724b, who files 316
a return under the federal income tax as an unmarried individual, a 317
married individual filing separately or a head of household, whose 318
federal adjusted gross income for the taxable year is less than one 319
hundred twenty-five thousand dollars or who files a return under the 320
federal income tax as married individuals filing jointly whose federal 321
adjusted gross income for the taxable year is less than two hundred fifty 322
thousand dollars: 323
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(I) To the extent not deductible in determining federal adjusted gross 324
income, for the taxable year commencing January 1, 2027, an amount 325
equal to the contributions deposited during the taxable years 326
commencing January 1, 2026, and January 1, 2027, in a first -time 327
homebuyer savings account established pursuant to subsection (c) of 328
section 12-724b, less any amounts withdrawn during said taxable years 329
by the account holder from such account under subparagraph (D) of 330
subdivision (2) of subsection (f) of section 12-724b. The amount claimed 331
under this subclause shall not exceed two thousand five hundred 332
dollars for each such taxable year for an unmarried individual, a 333
married individual filing separately or a head of household and five 334
thousand dollars for each such taxable year for married individuals 335
filing jointly; 336
(II) To the extent not deductible in determining federal adjusted gross 337
income, for the taxable year commencing January 1, 2028, and each 338
taxable year thereafter, an amount equal to the contributions deposited 339
during the taxable year in a first -time homebuyer savings account 340
established pursuant to subsection (c) of section 12 -724b, less any 341
amounts withdrawn during the taxable year by the account holder from 342
such account pursuant to subparagraph (D) of subdivision (2) of 343
subsection (f) of section 12 -724b. The amount allowed to be claimed 344
under this subclause for the taxable year shall not exceed two thousand 345
five hundred dollars for an unmarried individual, a married individual 346
filing separately or a head of household and five thousand dollars for 347
married individuals filing jointly; and 348
(III) To the extent properly includable in gross income for federal 349
income tax purposes, for the taxable year commencing January 1, 2027, 350
and each taxable year thereafter, an amount equal to the sum of all 351
interest accrued on a first-time homebuyer savings account, established 352
pursuant to subsection (c) of section 12 -724b, during the taxable year; 353
and 354
(xxxvii) To the extent properly includable in gross income for federal 355
income tax purposes, for the taxable year commencing January 1, 2027, 356
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and each taxable year thereafter, for an account holder who is a qualified 357
beneficiary of a first -time homebuyer savings account, as those terms 358
are defined in section 12-724b, and who files a return under the federal 359
income tax as an unmarried individual, a married individual filing 360
separately or a head of household, whose federal adjusted gross income 361
for the taxable year is less than one hundred twenty -five thousand 362
dollars or who files a return under the federal income tax as married 363
individuals filing jointly whose federal adjusted gross income for the 364
taxable year is less than two hundred fifty thousand dollars, an amount 365
equal to any withdrawal from such account that is used to pay or 366
reimburse such qualified beneficiary for eligible costs, as defined in 367
section 12-724b, incurred by the qualified beneficiary. 368
This act shall take effect as follows and shall amend the following
sections:

Section 1 January 1, 2027, and
applicable to taxable years
commencing on or after
January 1, 2027
12-701(a)(20)(B)

FIN Joint Favorable

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The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of
the General Assembly, solely for purposes of information, summarization and explanation and do not
represent the intent of the General Assembly or either chamber thereof for any purpose. In general,
fiscal impacts are based upon a variety of informational sources, including the analyst’s professional
knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final
products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact:
Agency Affected Fund-Effect FY 27 $ FY 28 $
Revenue Serv., Dept. GF - Revenue
Loss
None 100,000
Note: GF=General Fund
Municipal Impact: None
Explanation
The bill, which expands the personal income tax deduction for
amortizable bond premiums paid on out -of-state government bonds,
results in a General Fund revenue loss of approximately $100,000
annually beginning in FY 28.
The Out Years
The annualized ongoing fiscal impact identified above would
continue into the future subject to the amount of applicable bond
premium amortized annually.

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OLR Bill Analysis
HB 5445

AN ACT CONCERNING THE AMORTIZABLE BOND PREMIUM
SUBTRACTION FOR PURPOSES OF THE PERSONAL INCOME
TAX.

SUMMARY
Under current law, Connecticut allows personal income taxpayers to
deduct amortizable bond premium paid on out-of-state government
bonds (which are exempt from federal income tax but subject to state
income tax ) if they incurred the premium in the course of a trade or
business. This bill expands th is deduction to allow all taxpayers to
deduct amortizable bond premium on out-of-state government bonds,
rather than just those who incurred them as a business expense.
EFFECTIVE DATE: January 1, 2027, and applicable to tax years
starting on or after that date.
BACKGROUND
Federal Tax Treatment of Amortizable Bond Premium
Bond premium is the amount a bond purchaser pays in excess of the
bond’s face value. For federal income tax purposes, the ability to
amortize bond premium depends on whether the bond is taxable or tax-
exempt. For taxable bonds, taxpayers can either:
1. treat the premium as part of the bond’s cost basis , reducing the
taxpayer’s capital gain (or increasing the loss) when the bond is
eventually sold or matures, or
2. amortize the bond premium over the life of the bond, reducing
the bond’s cost basis and the amount of taxable interest income
reported each year.
For tax-exempt bonds (such as state and municipal bonds), taxpayers
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must amortize any bond premium. Unlike with premium on a taxable
bond, there is no tax benefit for amortizing premium on tax -exempt
bonds because the bond’s interest is already tax-exempt.
COMMITTEE ACTION
Finance, Revenue and Bonding Committee
Joint Favorable
Yea 54 Nay 0 (03/30/2026)