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Mike DiSabatino CPA

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Reporting Interest on U.S. Savings Bonds

Reporting Interest on U.S. Savings Bonds

Reporting Interest on U.S. Savings Bonds

If you recently purchased U.S. savings bonds and wish to know how you must report the interest income on those bonds...

If you use the cash method of accounting, as most individual taxpayers do, you generally report the interest on U.S. savings bonds when you receive it. However, you report the interest on series EE, series E, and series I bonds in either of the following ways:

(1) Method 1: Postpone reporting the interest until the earlier of the year the bonds are cashed in or disposed of or the year in which they mature.

(2) Method 2: Elect to report the increase in redemption value as interest each year.

You must use the same method for all the series EE, series E, and series I bonds you own. If do not choose Method 2 by reporting the increase in redemption value as interest each year, you must use Method 1.

Note that if you plan to cash your bonds in the same year you will pay for higher educational expenses, you may want to use Method 1, because you may be able to exclude the interest from your income.

You do not have to get IRS permission if you want to change your method of reporting the interest from Method 1 to Method 2. In the year of change, you simply report all interest accrued to date and not previously reported for all your bonds.

Once you elect to report the interest each year under Method 2, you must continue to do so for all series EE, series E, and series I bonds you own and for any you receive later, unless the IRS grants you permission to change. However, permission for the change to Method 1 is automatically granted if you file a statement with certain required information as detailed in an IRS revenue procedure. You must attach this statement to your tax return for the year of change, which you must file by the due date (including extensions). Permission to change to Method 1 will be granted on a prospective basis only.

You can get an automatic extension of six months from the due date of your return for the year of change (excluding extensions) to file the statement with an amended return. On the statement, you should type or print "Filed pursuant to section 301.9100-2." To get this extension, you must have filed your original return for the year of the change by the due date (including extensions).

If you use an accrual method of accounting, you must report interest on U.S. savings bonds each year as it accrues. You cannot postpone reporting interest until you receive it or until the bonds mature.

Please call us to discuss in more detail the tax implications of your alternatives for reporting U.S. savings bond interest.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

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