U. S. Savings Bond Interest Income

There are two types of U. S. Savings bonds that bear interest which are reportable on you tax return.

• Series HH Bonds: issued at face value; interest is paid twice a year.


• Series EE Bonds: issued at discount (less than face amount), and the face amount is paid at maturity. The difference between the purchased price and the face value is taxable interest.

Reporting interest income on Series EE Bonds:

Cash-basis taxpayers (two methods of reporting interest income):

1. Postpone reporting the interest until the earlier of the year the bond is redeemed, or the year it matures, or


2. Report interest each year as it accrues.

Accrual-basis taxpayers:

1. Must report the increase in redemption value as interest each year.

Bonds sold between interest dates.

When bonds are sold between interest dates, part of the sales price is interest accrued at the date of sale. The seller must include this interest in income. The purchaser may treat this amount as a capital investment and deduct it from the next interest payment as a return of capital. The total payments must be shown on Schedule B as taxable interest adjusted (subtracted) by accrued interest.