The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:
A)the excess of the taxpayer's basis in the bonds over the bond proceeds.
B)the bond proceeds.
C)the excess of the bond proceeds over the taxpayer's basis in the bonds.
D)the taxpayer's basis in the bonds.
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

The amount of interest income a taxpayer recognizes when redeeming a U.S. savings bond is the excess of the bond proceeds over the taxpayer's basis in the bonds. This is because the interest income has already been accruing and being taxed during the time the taxpayer held onto the bond. Therefore, the taxpayer is only taxed on the difference between the original purchase price (basis) and the bond's redemption value (proceeds).

The Amount of Interest Income a Taxpayer Recognizes When He