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Tax Considerations for HH/H Bonds

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Note about H Bonds: All H Bonds are at least 30 years old. They no longer earn interest. If they were issued in exchange for earlier bonds and included deferred interest earned by earlier bonds, that interest was paid if you redeemed (cashed in) the H Bond.

Is HH Bond interest taxable?

The interest that your HH Bonds earn every six months is subject to federal income tax, but not to state or local income tax.

When must I report the interest on my federal income tax return?

The regular interest that your HH Bonds earn every six months must be reported on your Federal income tax return for the year in which the interest is paid. By January 31 of each year, we send the bond owner an IRS 1099-INT form showing the interest paid in the previous year.

Who owes the tax?

Situation Who owes the tax
You are the only owner of the bond You
You used your bonds to acquire an HH bond in an exchange, and the HH bonds that were issued are in your name with a co-owner. You
   
In acquiring HH bonds in an exchange, you submitted bonds that you and another person bought together, each providing part of the money to buy the bonds, and you are both named as co-owners on the HH bonds issued in the exchange. You and the other person must each report the interest in proportion to how much you each paid for the bonds exchanged for the HH bonds. We send only one 1099-INT. We send it to the person whose name is first in the bond's registration.
You and your spouse live in a community property state and own the HH bond that is community property and you file separate tax returns You and your spouse each report 1/2 of the interest. We send only one 1099-INT. We send it to the person whose name is first in the bond's registration.

What if the HH Bond includes deferred interest?

With an HH Bond, you may be postponing (deferring) interest that an earlier bond earned.

How can an HH Bond have deferred interest?

HH Bonds were available in exchange for other bonds (such as, Series E or EE bonds) that had been bought earlier.HH Bonds with issue dates of November 1982 and later were only available in exchange for other bonds that had been bought earlier.

Rules that governed these exchanges allowed the HH Bond owner to wait to get the interest earned by the earlier bonds and, therefore, to postpone (defer) paying tax on that interest until the HH Bond's life ended either because it was redeemed or it was 20 years old.

With the exchange, Treasury allowed the older bonds' interest to continue to be deferred for federal income tax reporting purposes as part of owning an HH Bond.

How do I know if my HH Bond has deferred interest?

The amount of the deferred interest is included in the face amount of the HH Bond and is shown in a tax-deferral legend on the front of the bond.

If the exchange included more than one HH Bond, the amount of the deferred interest was divided proportionately among the HH Bonds.

How long may I continue to defer the interest?

You may wait to include the deferred interest on your Federal income tax return until you are filing your return for the year in which the first of these events occurs:

  • You cash in (redeem) the HH Bond.
  • The HH Bond stops earning interest.
  • The HH Bond is reissued to show a change in ownership that is a taxable event. Reissuing or Replacing a Savings Bond.

We will include the deferred interest on an IRS 1099-INT for that year.

For more information

See IRS Publication 550 Investment Income and Expenses