On a tax-exempt bond bought at a premium, some brokers amortize that premium over the number of months from purchase date to the first call date. While that reduces the amount of tax-exempt income every year until the call since the premium is amortized over fewer months, this has no bearing on income taxes whatsoever as the pre-call interest is tax exempted either way, with or without premium amortization. Should we not instead amortize the premium over the number of months from purchase date up to maturity date on tax exempted bonds, creating a lower amortization amount every year but then providing a capital loss at time of the call, if a call is ever made? Calls are not necessarily made on the first call date anyway; they can be made months or years after. I can understand people preferring amortization calculated up to the first call date to reduce their taxable interest more every year, but on a tax-exempt bond, isn't that approach totally unfair? And doesn't that totally misrepresent the Yield-to-Worst % yield brokers give us at time of our purchase?
