Since charitable bequests of IRD can provide both estate tax and income tax charitable deductions, a person who has charitable intent can apply 100% of the bond's value to a specific charitable purpose.Īnother alternative is to transfer the bonds at death to a tax-exempt charitable remainder trust. Unless there is a charitable gift, the government could receive over 76% of the bond's interest income through a combination of estate and income taxes (Exhibit A). 2Īfter an owner's death, however, these bonds become very attractive sources for charitable bequests because so much of their value is attributable to untaxed interest income, which constitutes income in respect of a decedent (IRD). A living donor is generally better off making charitable contributions of appreciated stock or real estate since he or she can usually deduct the entire value of the gift without recognizing any long-term capital gain from the property's appreciation in value. Any attempt to transfer ownership of the bonds will usually trigger all of the untaxed interest income that had accumulated. #Donate us savings to college seriesSeries EE and Series HH savings bonds are not particularly attractive sources of charitable gifts while the owner is alive. When Series HH bonds are redeemed, the owner will finally be taxed on all of the accumulated interest on the Series EE bonds. The owner usually redeems the bonds for cash at that time. Series HH bonds pay interest for up to 20 years. #Donate us savings to college fullThis enables the owners to receive interest payments based on the full value of the Series EE bonds without having to recognize the accumulated interest. For owners of Series EE bonds with untaxed accumulated interest, a popular strategy is to swap the bonds in a tax-free exchange for Series HH bonds. Series HH savings bonds (formerly Series H) are issued at their face amount (minimum $500 per bond) and pay interest twice each year. The amount of interest income that the owner must eventually report is the difference between the bond's redemption amount and the original purchase price. 454(a) election to recognize taxable income as the interest accrues (something rarely done), the owner of the bond is usually not taxed until he or she redeems the bond. Series EE bonds accumulate interest for up to 30 years after the issue date (40 years for Series E bonds issued before November 1965). It can be redeemed at the maturity date for the stated value, but often the owner continues to hold the bonds and interest continues to accumulate. Each bond grows in value because of the accumulated interest. They are usually issued at a discount price of half of the bond's stated maturity value (e.g., a savings bond with a stated maturity value of $100 usually is purchased at a discount price of $50). Series EE savings bonds (formerly Series E) are the most common variety of savings bonds.
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