Yes, that is correct, the bond premium can't be more than the taxable interest income. The reason is that the bond premium reduces the taxable interest.
The error that you get reads:
"You must reduce the bond premium amount to no more than the amount in Box 2, and report any excess on Schedule A subject to limitations."
This means that if Box 2 is $0, Box 10 must also be $0. You can deduct the excess amount in Box 10 on Schedule A, if you itemize your deductions:
- Click on Federal Taxes, then Deductions & Credits.
- Scroll down to Other Deductions and Credits, expand the section.
- Click Start to the right of Other Deductible Expenses.
- Answer the next two questions No.
- Answer Yes to Did you have any of these other expenses?
- Enter the amount next to Amortizable bond premiums.
This is consistent with IRS Publication 550. Click here for more.
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