Spring Lake Heights, New Jersey (PRWEB) March 18, 2014
SavingsBonds.com wants to clarify taxation issues when cashing in paper Series E or EE Savings Bonds. The difference between the purchase price of a savings bond and the cash in amount is considered interest income. That interest is subject to federal income tax and should be reported on a federal income tax return. In situations when two people each paid a portion for a bond, or co-owners are listed on a bond together, it is important to understand who is responsible to report the interest income on a tax return. Below are five cash in scenarios:
1. If an individual purchased a bond and is the only person (aka primary owner) listed on the bond, that person must report the interest income.
2. If an individual used all their money to purchase a bond, is listed as the primary owner, and a co-owner is also named on the bond, the individual who purchased the bond and cashed it in must report the interest income.
3. If an individual purchased a bond but another person is named as the only (aka primary) owner, the person named on the bond must report the interest income.
4. If two individuals purchase a bond together, and each person contributed a portion of the money (both people are listed as co-owners), then each person must report the interest in proportion to how much each paid for the bond(s).
5. If an individual and their spouse live in a community property state and buy a bond that is community property and file separate federal income tax returns, each spouse must report one-half of the interest income.
It should be noted that when two people are listed on a bond as co-owners, each person has equal rights to the bond. Either co-owner can cash in a bond without the other person's (co-owner’s) consent. As a practical matter, the co-owner that redeems the (paper) bond will receive the 1099-INT regardless of who purchased the bond.
The good news is interest earned on savings bonds is free from state and local taxes. Interest earned from bonds should be reported on the same line with other interest income on a federal income tax return. At least that part of the cashing in is easy to understand.
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