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Interest on U.S. Savings Bonds is tax-deferred. Federal tax is due, when the bonds are cashed out, but (unlike Treasury bills and bonds), not before.

Must the tax-deferred interest on U.S. Savings Bonds be reported, on the 1040, as tax-exempt income? If the bonds are held by a trust, must the the tax-deferred interest be reported, on the 1041, as tax-exempt income?

My understanding is that the interest does not need to be reported at all, until the bonds are cashed out. That's why so many bonds are simply left in family safe-deposit boxes, forgotten, long after the bonds are due.
Is that correct?
Wendy
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Interest on U.S. Savings Bonds is tax-deferred. Federal tax is due, when the bonds are cashed out, but (unlike Treasury bills and bonds), not before.

Actually, you have the option of reporting the interest as it accrues, or waiting until you cash the bonds. See IRS Pub. 550, Investment Income and Expense. www.irs.gov/pub/irs-pdf/p550.pdf There are specific rules about switching methods.

Must the tax-deferred interest on U.S. Savings Bonds be reported, on the 1040, as tax-exempt income? If the bonds are held by a trust, must the the tax-deferred interest be reported, on the 1041, as tax-exempt income?

The tax-deferred interest is not tax-exempt. If you are reporting the interest at redemption, you do not report anything before redemption.

My understanding is that the interest does not need to be reported at all, until the bonds are cashed out. That's why so many bonds are simply left in family safe-deposit boxes, forgotten, long after the bonds are due.
Is that correct?


Right.

Ira
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Actually, you have the option of reporting the interest as it accrues, or waiting until you cash the bonds.

I thought if you wait to report the interest (rather than doing so annually) you are supposed to report the interest when the bond matures (final maturity, not original maturity), whether or not you redeem it savings bond that year.

I distinctly remember reading that several years ago (when some of our bonds matured) and that's what I did, but now I can't find it.

- Megan
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The tax-deferred interest is not tax-exempt

I think interest from savings bonds is subtracted from Federal AGI here in VA. So, does that mean it's tax-exempt on the state level?

~~ Alison
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The tax-deferred interest is not tax-exempt

I think interest from savings bonds is subtracted from Federal AGI here in VA. So, does that mean it's tax-exempt on the state level?


Interest on US Government notes and bonds is exempt from state taxation in all states.

The general assumption on this board is that questions and answers refer to federal taxes unless otherwise specified.

Ira

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The general assumption on this board is that questions and answers refer to federal taxes unless otherwise specified.

D'oh!

<the sound you hear is me smacking myself upside the head ;^D>

Thanks, Ira.

~~ Alison
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