In other words, you cash the bonds and save back what you need to pay the tax on the interest. Since you don't need the money now, you reinvest what's left in new Savings Bonds.

The worst thing you can do is not cash the bonds. That's just a free loan to the government.

Tom Adams

If that's the case, you'll get the 1099 from the Federal Reserve.

If you really did send the bond to TreasuryDirect and they redeemed a Series E bond for you like this (a Series E can't be converted to an electronic bond), that's actually pretty big news. They've never said they'd do that. And if they did, it sounds like their processes aren't mature, since they didn't get the interest on your 1099.

Tom Adams

I redeemed them through TreasuryDirect, not a bank. My credit union does not buy or sell savings bonds, and none of the local banks in town would cash a bond over $1000 for someone without an account. I didn't want to open up an account just to cash them, so that's why I sent them (via registered mail) and cashed them directly with TD. They converted them into a CofI account, I fiddled with 4 week T-bills for a while, then just took all the cash out. So to be more accurate my 1099 is not entirely blank, it has about $10 in interest from the T-Bill activity, but none of the original $5k+ paper-to-cash conversion.

Seems to me I should probably call/write to TreasuryDirect and find out why my 1099 is wrong then?

Much thanks again.

The 1099 you received from the Treasury doesn't include paper Savings Bonds. You should get a 1099 for the paper Savings Bonds from the bank where you cashed them.

Tom Adams

In 2008 my wife cashed out 4 Series E bonds that had matured (they were from 1972 & 1973), that her parents had bought for her and left in an old safe deposit box, only to be found last summer. Since they were incontrovertible to modern bonds, I just cashed them out. Face value of the bonds was $500,$500,$25, and $25 = $1050 total. The cash value we received was about $5800.

So what do I report as far as taxes go? Common sense tells me I should report $5800 - $1050 = $4750 as ordinary interest income on my federal return (and not on my state or local), and pay about 28% on that (about $1330).

Am I correct, or is there some other basis I should be using? Should the basis be 75% of the maturity value ($787.50), since that was what was paid to buy them? Some places I'm reading on the internet go so far as to suggest I should have paid taxes on it when they matured (2002 and 2003) and should amend my returns for those years. We didn't even know these existed until last summer, so that seems rather unreasonable.

One more kicker is that the 1099 form that I received from the US Treasury (where I redeemed these) shows nothing– "no reportable transactions" — for every box on every 1099 form (INT, B, OID). If it reported things nicely, I don't think I would have any question at all. But if the Treasury itself can't figure out what to do with these, how can I?

Thanks for reading, and hopefully answering. Keep up the good work.