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Is interest on US savings bonds tax exempt?

Is interest on US savings bonds tax exempt?

Savings bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes. Interest earnings are subject to Federal income tax. Interest earnings may be excluded from Federal income tax when bonds are used to finance education (see education tax exclusions).

Who can exclude interest on Series I US Savings Bonds?

To take the exclusion on qualified Savings Bonds, one must: 1) have paid “qualified” higher education expenses (as defined by the IRS) for themselves, spouse or dependent, excluding room and board; 2) have a filing status other than married filing separately; and 3) have an adjusted gross income that does not exceed …

How can I avoid paying interest on savings bonds?

Report interest each year and pay taxes on it annually. Defer reporting interest until you redeem the bonds or give up ownership of the bond and it’s reissued or the bond is no longer earning interest because it’s matured.

How is the exclusion of a savings bond calculated?

To find out how much, divide your qualified expenses by the total bond proceeds to get a percentage, and multiply that percentage by the interest you received on the bonds. That’s the amount of interest you can exclude, unless you’re subject to the AGI limits.

How do you report interest on savings bond?

There are generally two ways to report the interest on U.S. savings bonds: Annually on the owner’s tax return or at maturity. When there is a change of ownership, as in your case, the method of reporting can be changed. These bonds are known as Series E, EE or I bonds.

What is the tax on savings bond interest?

No State Taxes. Interest earned on U.S. savings bonds is only taxable on your federal income return. The interest from U.S. government bonds, including savings bonds, is exempt from state income taxes.

Do you pay taxes on savings bonds?

Savings bonds are free from state and local taxes. You don’t collect your interest until you redeem your bonds, which allows you to postpone taxes until redemption, though you can choose to pay taxes every year on the interest accrued.

Is interest earned on savings bonds taxable?

Interest earned on a U.S. Savings Bond is taxed as ordinary income. Interest on savings bonds is subject only to federal income tax, and can’t be taxed by state and local governments. The person who owns a savings bond is responsible for paying income tax on the interest.