The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is:

Question

Quizplus · Accepted Answer

The amount of interest income a taxpayer recognizes when he redeems a U.S. savings bond is the excess of the bond proceeds over the taxpayer's basis in the bonds. The basis in the bonds includes the amount paid for the bonds plus any accrued interest previously reported as income. Therefore, the taxpayer only recognizes as income the interest earned on the bonds since the purchase or last interest accrual date, which is the difference between the bond proceeds and the basis. Choice A is incorrect because the excess of the basis over the bond proceeds would result in a capital loss, not interest income. Choice B is incorrect because it represents the total amount received for the bonds, including both principal and interest, but the interest portion is taxable as income. Choice D is incorrect because it represents the original amount paid for the bonds, but interest has been earned and taxed since that time. Choice E is incorrect because one of the choices is correct.

The Amount of Interest Income a Taxpayer Recognizes When He