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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7225
Experience:  15years with H & R Block. Divisional leader, Instructor
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I have never paid taxes on my EE Savings Bonds. The interest

Resolved Question:

I have never paid taxes on my EE Savings Bonds. The interest on the bonds is $36,074. If I earn $21,600 in unemployment payments from the California State Government in 2011 and I cash in my EE savings bonds this year (2011) would I be able to itemize deductions on interest paid during tax year 2011 from my 1st Mortgage of $4878 + California State Property taxes of $2478, + Amortized interest over the life of a silent 2nd loan from the city of Emeryville,Ca (Principal is $32,500 and interest over 9.08 years is $$14,755 at 5%) is $1625=8981 in interest and California State property taxes paid for 2011. Would these payments offset taxes on the EE Savings Bond interest of $36,074 + Unemployment benefits from California EDD of $21,600 in tax year 2011?
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.

Robin D :

Hello and thank you for using Just Answer.


When you redeem your paper savings bonds and savings notes, the institution paying the bonds will report interest earned on the bonds or notes to you and to the IRS. You will receive an IRS Form 1099-INT from the institution, either at the time you redeem your bonds or shortly after the end of the year in which you redeemed the bonds. Certainly being able to itemize your taxes and mortgage interest will allow you a better tax situation than just using your standard deduction. You may only use the mortgage interest that was actually paid in the tax year though. The amounts will not totally "zero" you out for tax on the income but it will, as I said be better if your itemized amounts are larger than the standard deduction.


The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution. So if you didi pay education expenses for you, your spouse, or your dependent you may be able to use that to lessen your tax on the bonds.

Customer:

Do I need to amortize the interest over the life of the silent 2nd loan I am paying off or can I deduct all the interest paid in the tax year 2011.If I have to amortize the interest $14,755(total interest paid on the loan in 2011 divided by the number of years I have held the loan-9.08 years or can I itemize the total amount of interest I paid, $14,755 in the tax year 2011?

Robin D :

Only the amount paid in the tax year is allowed. All interest paid in 2011 for the main home is allowed.

Customer:

If I understand correctly regarding the interest paid on the ee Series Savings bonds, I can only deduct the interest on the EE series bonds if I am paying for qualified higher education at an eligible institution. Do you know what is meant by eligible institution, how is that determined?

Robin D :

An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Customer:

So the interest paid from the EE series savings bonds cannot offset taxes from interest on Mortgages or income from unemployment, it can only be offset by educational expenses from eligible postsecondary institutions as determined by the U.S. Dept of Education?

Robin D :

Well the interest that you pay on mortgage will help to lower your taxable income (if it is more to itemize then use standard deduction) but it cannot just be used to lower the interest income as a straight subtraction. If you do have education expenses then that could really help the interest earned on the EE bonds.

Robin D :

You always come back here even after you click ACCEPT. Thanks

Robin D :

Did you have another question?

Customer:

No thank you for your time. You've been very helpful

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7225
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you

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