Series EE Bonds - Quickfinder Chapter 5 – Schedule B
Ø Can you explain how Series EE bonds work and how they are taxed?
· Bonds are issued with a specific face value and are purchased at a discount. The discount is considered the interest earned over the life of the bond.
· Interest is subject to federal income tax but is exempt from state and local tax.
· Generally, the interest is taxable in the year the bonds mature or are redeemed.
· Taxpayers may elect to report interest annually as it accrues. Once this election is made it applies to all Series EE bonds owned by the taxpayer.
· Interest earned on EE bonds may be eligible to be excluded from income if used for education, which is explained later.
Ø What happens if the owner of the Series EE bond passes away?
There are two options for reporting deferred interest on EE bonds when the owner dies:
· Include the deceased individual’s share of interest on the decedent’s final income tax return, and the beneficiary pays tax only on the amount of interest that accrues after death
· All interest is taxed to the beneficiary either when the bonds are redeemed or, if the beneficiary elects, annually as it accrues.
Ø What are the qualifications for being able to exclude Series EE bond interest from my taxable income?
Who Can Take the Exclusion?
You can take the exclusion if all four of the following apply.
· You cashed qualified U.S. savings bonds in 2018 that were issued after 1989.
· You paid qualified higher education expenses in 2018 for yourself,
your spouse, or your dependents.
· Your filing status is any status except married filing separately.
· Your modified AGI (adjusted gross income) is less than: $94,550 if single or head of household;
$149,300 if married filing jointly or qualifying widower with dependent child.
U.S. Savings Bonds That Qualify for Exclusion -
To qualify for the exclusion, the bonds must be series EE or I U.S. savings bonds issued after 1989 in your name, or, if you are married, they may be issued in your name and your spouse’s name. Also, you must have been age 24 or older before the bonds were issued. A bond bought by a parent and issued in the name of his or her child under age 24 does not qualify for the exclusion by the parent or child.
IRS pub 550