The Motley Fool Discussion Boards
Financial Planning / Tax Strategies
|Subject: Re: Converting EE Bonds to HH Bonds||Date: 11/18/1998 11:03 AM|
|Author: TMFTaxes||Number: 6360 of 121061|
[[My mother has some old EE bonds earning minimum interest and wants a way transferring them to
my son tax free and avoiding capital gain taxes. If she were to simply cash in the EE Bond she
would have a $6000 gain.]]
OK...so far...so good.
[[ A broker told her that she could convert the EE Bonds to HH Bonds and list my son as a co-owner
of the bond under his SS number. He also said that after 6 months,
my son could cash in the bond free of any capital gain taxes. I'm aware of the 10K gifting strategy
but this broker led my mom to believe that she could also avoid capital gains by this
conversion/transfer. My mom asked
her attorney but he admittingly was clueless.]]
I don't think so.
RevRul 55-278 says that if the taxpayer transfers ownership of Series E or EE bonds (or, by virtue of a tax free exchange into HH bonds) to a co-owner or beneficiary (by having the bond reissued in the name of the co-owner or beneficiary), the taxpayer must report all the previously unreported interest in the year of transfer (reissue). The taxpayer is also considered to have made a gift to this other person.
[[Does anyone know the whether this scheme is valid? Or can someone refer me to some on-line
publication that might validate this scheme?]]
I took a brief look and couldn't find any information that would confirm that this could be done and avoid all current income and future estate taxes. I would love to see the tax information that your broker would have that claims this is a valid technique. So if you happen to get a code section and/or revenue ruling and/or procedure from the broker, please let me know and I'll be happy to try and research it in a bit more detail.
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