Amortizable Bond Premium

Big term, simple concept. When a bond has a higher coupon than current interest rates, you pay a premium for it (i.e., more money). That premium can be amortized for tax purposes, meaning that it is split up over a period of years.

Put simply, you then take a portion of that premium each year against your cost basis (what you actually paid for it). Like...you paid $1,050 for a $1,000 par value bond with a coupon of 6% coming due in 5 years. You'd get 60 bucks a year for those 5 years...but you'd amortize away for tax purposes the 10 bucks you lost each year for 5 years as the premium value of the bond declined on its way to par.

That is, you'd pay taxes on 50 bucks (ordinary income), not on the $60 in cash you made as the amortization of the decline in value from premium to par functions essentially as a tax buffer.