J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

4.28 Interest on United States Savings Bonds

Savings Bond Tables: The e-Supplement at www.jklasser.com will contain redemption tables showing the 2012 year-end values of Series EE bonds and Series I bonds.

EE Bonds.

Series EE bonds may be cashed for what you paid for them plus an increase in their value over their 30-year maturity period. See the discussion of the interest accrual and redemption rules for U.S. Savings Bonds (30.14).

The increase in redemption value is taxable as interest, but you do not have to report the increase in value each year on your federal return. You may defer (4.29) the interest income until the year in which you cash the bond or the year in which the bond finally matures, whichever is earlier. But if you want, you may report the annual increase by merely including it on your tax return. If you use the accrual method of reporting, you must include the interest each year as it accrues. Savings bond interest is not subject to state or local taxes.

If you initially choose to defer the reporting of interest and later want to switch to annual reporting, you may do so. You may also change from the annual reporting method to the deferral method. See 4.29 for rules on changing reporting methods.

Series I bonds.

“I bonds” are inflation-indexed bonds issued at face amount (30.15). As with EE bonds, you may defer the interest income (the increase in redemption value each year is interest) until the year in which the bond is redeemed or matures in 30 years, whichever ...