When you cash Series E, Series EE, and Series I savings bonds, the interest earned on these bonds must be reported as income. Here is a detailed explanation of how to report the interest for each type of bond:
- Series E Savings Bonds:
- According to § 454(c) of the Internal Revenue Code, if you hold a Series E bond until maturity or exchange it for another nontransferable obligation of the United States, the increase in redemption value (to the extent not previously included in gross income) is includible in gross income in the taxable year in which the bond is finally redeemed or reaches final maturity, whichever is earlier.
- Therefore, you should report the interest income in the year you cash the bond or the year it matures, whichever comes first.
- Series EE and Series I Savings Bonds:
- For Series EE and Series I bonds, you have two reporting options if you use the cash method of accounting:
- Method 1: Postpone reporting the interest until the year you cash or dispose of the bonds or the year they mature. If you choose this method, you report the total interest earned on the bonds in the year you cash them.
- Method 2: Report the increase in redemption value as interest each year. If you choose this method, you must continue to report the interest annually for all Series EE and Series I bonds you own and for any you acquire later, unless you request permission to change back to Method 1.
- If you use the accrual method of accounting, you must report the interest each year as it accrues.
- General Reporting Requirements:
- Interest on U.S. savings bonds is generally reported to you on Form 1099-INT. This form shows the interest income you received during the year. You should report this interest income on your tax return.
- If you did not receive a Form 1099-INT, you are still required to report all interest income. This includes interest from savings bonds that may not have been reported to you on a Form 1099-INT.
- Special Situations:
- If you acquired the bonds from a decedent, the interest earned up to the date of death must be reported on the decedent's final return. The transferee (estate or beneficiary) reports only the interest earned after the date of death.
- If you use the interest from Series EE or Series I bonds to pay for qualified higher education expenses, you may be able to exclude the interest from income. This exclusion applies if the bonds were issued after 1989 and you were 24 years of age or older when the bonds were issued.
In summary, you should report the interest from Series E, Series EE, and Series I savings bonds on your tax return in the year you cash the bonds or the year they mature, unless you have chosen to report the interest annually. Use Form 1099-INT to report the interest income, and ensure you include all interest income even if you did not receive a Form 1099-INT.
Sources:
Publication 559 (2023)
§ 454. Obligations issued at discount
Publication 1380
Publication 970 (2023)
Publication 550 (2023)
Publication 525 (2023)
Publication 17 (2023)
