Question

Which one of the following statements is INCORRECT regarding interest earned on U.S. savings bonds?

A) Taxpayers may elect to include the increase in the bond redemption value in income each year.

B) Taxpayers may recognize the interest that has accumulated on the bonds when they are redeemed.

C) Taxpayers include the periodic interest payments from U.S. savings bonds in gross income each year when received.

D) Taxpayers may exclude interest from Series EE and Series I bonds if the proceeds are used for educational expenses.

Answer 1

Taxpayers may exclude interest from Series EE and Series I bonds if used for educational expenses.

Step-by-step explanation:

The correct statement regarding interest earned on U.S. savings bonds is D) Taxpayers may exclude interest from Series EE and Series I bonds if the proceeds are used for educational expenses.

Interest earned on U.S. savings bonds is generally subject to federal income tax. However, taxpayers may be able to exclude interest from Series EE and Series I bonds if the proceeds are used for qualified educational expenses, such as tuition and fees.

For example, if a taxpayer earns $500 in interest from Series EE and Series I bonds and uses the entire amount for qualified educational expenses, they would not have to include the interest in their gross income for tax purposes.