Jerry purchased a U.S. Series EE savings bond for $744. The bond has a maturity

Question

Jerry purchased a U.S. Series EE savings bond for $744. The bond has a maturity value in 10 years of $1,000 and yields 3% interest. This is the first Series EE bond that Jerry has ever owned.

a.Jerry can defer the interest income until the bond matures in 10 years.

b.The interest on the bonds is exempt from Federal income tax.

c.Jerry can report all of the $256 as a capital gain in the year it matures.

d.Jerry must report ($1,000 – $744)/10 = $25.60 interest income each year he owns the bond.

e.None of these choices are correct.

Explanation / Answer

Solution:

The original issue discount on the Series EE bonds is not subject to the OID rules, therefore "Jerry can defer the interest income until the bond matures in 10 years."

Hence option a is correct.

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