How to Report Bond Premium on Tax-Exempt Bonds (Box 13)

Bond premium on tax-exempt bonds appears in Box 13 of Form 1099-INT, and it reduces the tax-exempt interest you report. Subtract the Box 13 amount from the tax-exempt interest in Box 8, then put the net figure on Line 2a of Form 1040. That is how to report bond premium on tax-exempt bonds in the ordinary case, and the adjustment goes directly on the 1040 rather than through Schedule B. The net number matters beyond the return itself because your total tax-exempt interest feeds into Medicare premium tiers, Social Security taxation, and modified adjusted gross income calculations.

Reading Box 8 and Box 13 Together

Your broker reports tax-exempt interest paid during the year in Box 8, covering municipal bonds and similar state and local obligations.¹ Box 13 shows the amortized bond premium allocable to that interest.²

Brokers can present these two numbers in one of two ways, and the presentation determines what you do:

Gross reporting. Box 8 shows the full interest and Box 13 shows the premium separately. You subtract Box 13 from Box 8 to arrive at the net tax-exempt interest for your return.
Net reporting. Box 8 already has the premium subtracted, and Box 13 is left blank. You use the Box 8 figure as-is. The IRS instructions confirm that when a broker reports a net amount in Box 8, Box 13 should be empty.²

If Box 13 is blank but you know you bought bonds above face value, look at your broker’s year-end tax detail. The offset is likely already inside the Box 8 number, and reapplying it would double-count.

Amortization is not optional on tax-exempt bonds. The IRS requires you to reduce your reported interest each year by the premium allocable to that year, and you get no deduction because the interest itself was never taxable.³⁴ For covered securities, which includes most bonds purchased through a broker after 2014, the broker runs the calculation, so the Box 13 figure is what you use.

Where the Number Goes on Your Return

Tax-exempt interest does not belong on Schedule B. The Schedule B instructions state plainly that tax-exempt interest is not reported on Line 1, and the “ABP Adjustment” label there applies to taxable bond premium only.⁵ Putting tax-exempt figures on Schedule B is the most common mistake people make with this reporting.

The net tax-exempt interest goes on Line 2a of Form 1040 or 1040-SR. The Form 1040 instructions say that if you acquired a tax-exempt bond at a premium, you report only the net amount on Line 2a, meaning the interest received during the year minus the amortized premium for the year.⁶

The steps in practice:

If Box 8 and Box 13 both have figures, subtract Box 13 from Box 8 and put the result on Line 2a.
If Box 8 has a figure and Box 13 is blank, put Box 8 on Line 2a.
If you have 1099-INTs from more than one broker, do the calculation for each and enter the combined total on Line 2a.

Line 2a is informational. The number you enter is not added to taxable income, but it must appear because the IRS uses it in other calculations.³

When the Premium Exceeds the Interest

On deeply premium bonds, or when you hold a bond for only part of a year, the amortized premium can exceed the interest for the period. The excess is a nondeductible loss.⁷ You cannot use it to offset other income, and your reported tax-exempt interest cannot drop below zero. The excess still reduces your basis in the bond, but produces no tax benefit. Most tax software flags this if Box 13 exceeds Box 8, so watch for warnings while filing.

Why the Net Figure Matters Elsewhere

Overstating tax-exempt interest, by forgetting to subtract Box 13, can raise your income under several tests that use the Line 2a number.

Modified Adjusted Gross Income

MAGI for the Premium Tax Credit adds tax-exempt interest, foreign earned income, and nontaxable Social Security back to AGI.⁸ An inflated Line 2a inflates your MAGI, which can reduce a credit you otherwise qualified for.

Social Security Benefit Taxation

If you collect Social Security, tax-exempt interest is part of the provisional income formula that decides how much of your benefits get taxed. For single filers, provisional income between $25,000 and $34,000 makes up to 50% of benefits taxable; above $34,000, up to 85% can be taxed. Joint thresholds are $32,000 and $44,000. Each dollar of overstated tax-exempt interest is a dollar of extra provisional income.

Medicare Premium Surcharges

Income-Related Monthly Adjustment Amounts raise Medicare Part B and Part D premiums when MAGI crosses thresholds. For 2026, the first tier starts at $109,000 for individuals and $218,000 for joint filers.⁹ Because IRMAA MAGI includes tax-exempt interest, missing the Box 13 subtraction can push you into a higher tier that costs hundreds of dollars per month.

Net Investment Income Tax

One place tax-exempt interest does not affect: the 3.8% Net Investment Income Tax. Municipal bond interest is excluded from the NIIT calculation, so the Box 13 adjustment does not change NIIT liability either way.¹⁰

What Amortization Does to Your Basis

Each year’s amortized premium also reduces your cost basis in the bond, not just the interest.⁴ Pay $10,500 for a bond with a $10,000 face value, absorb $100 of amortization in the first year, and your adjusted basis becomes $10,400. Later years continue that walk down toward par.

If you hold to maturity, the basis lands at face value and there is no gain or loss at redemption. If you sell earlier, the gain or loss is measured against the adjusted basis, not your original purchase price. Brokers track basis for covered securities and will report it on Form 1099-B at sale. For older bonds outside the covered rules, keep your own running tally of each year’s Box 13 amount.

Private Activity Bonds and the AMT

Not all tax-exempt interest is treated equally. Interest from specified private activity bonds issued after August 7, 1986, is a preference item for the Alternative Minimum Tax.¹¹ If any of your interest falls in that category, it shows up in Box 9 of the 1099-INT and gets reported on Form 6251, Line 2g.¹² A zero in Box 9 means your bonds do not trigger the add-back.

The Line 2g amount is reduced by any deduction that would have been allowable if the interest were taxable, so bond premium amortization can offset the AMT preference and, in some cases, eliminate it.¹²

Records to Keep

The general three-year retention rule is not enough for bond premium documentation. Because amortization changes basis, and basis matters when you sell, the IRS advises keeping property-related records until the statute of limitations closes on the year you dispose of the bond.¹³ Buy in 2026 and sell in 2035, and you need every 1099-INT and amortization figure through at least 2038. A single folder with each year’s 1099-INT is the easiest way to stay covered.

1
Internal Revenue Service. Form 1099-INT (Rev. January 2024)
2
Internal Revenue Service. Instructions for Forms 1099-INT and 1099-OID (01/2024)
3
Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses
4
Office of the Law Revision Counsel. 26 U.S. Code 171 – Amortizable Bond Premium
5
Internal Revenue Service. Instructions for Schedule B (Form 1040) (2025)
6
Internal Revenue Service. Instructions for Form 1040
7
eCFR. 26 CFR 1.171-2 – Amortization of Bond Premium
8
Internal Revenue Service. Modified Adjusted Gross Income
9
CMS. 2026 Medicare Parts A and B Premiums and Deductibles
10
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
11
Internal Revenue Service. TEB Phase II – Lesson 4 General Rules for Private Activity Bonds
12
Internal Revenue Service. Instructions for Form 6251 (2025)
13
Internal Revenue Service. How Long Should I Keep Records?