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Gifting Stock
Dear Jeff:
I recently discovered I have some 30-year Series E Bonds, which matured 10 years ago. Is there any way that I can cash them in without having to pay taxes on them? Thank you.
Jeff Says:
Series E bonds are the predecessor to the Series EE bonds, which are a very common asset found in portfolios today. When you purchase a savings bond, they are issued at a 50 percent discount from the stated face value unlike their predecessors, which were originally issued at 75 percent of face value. In all other respects, the E and EE bonds are identical.
Interest on Series EE bonds is not paid until maturity, and the holder is not taxed until the bond is redeemed. This tax benefit is also the cause for your question. Fortunately, Series E and EE bonds may be exchanged for Series HH bonds, in which case the taxation of your deferred E bond interest may continue to be deferred until the HH bonds are redeemed, disposed of, or mature. However, you will have to pay tax on HH bond interest as it is earned. There is no deferral of interest as with Series E, or EE.
Additionally, keep in mind that the interest earned on Series E and EE bonds is exempt from state and local income taxes. And interest on Series EE bonds issued after 1989 is excluded from gross income if the proceeds are used for qualified educational expenses. Be careful, though, because there are a number of limitations for this exception.
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