When is the best time to cash in series EE Bonds?

[Lynn CC]

My DS has a bunch of bonds and he thought he could use the money for spending money during the winter this year since he'll be out of the dorm and in an apartment. Does he pay taxes on the money if he cashes them in and buys texbooks or puts it toward his tuition? He's trying to avoid taxes!
The bonds were issued in 1987, do you think he should hold on to them until he's out of graduate school?

 

[momrek06]

bumping..BIG TIME!!! My DS' have been getting them since 1982 and 1985!!!

 

[buddy&wooz]

Found this here: http://www.savingsbonds.gov/indiv/research/indepth/ebonds/res_e_tax.htm

Education-Related Tax Breaks
Under the Education Savings Bond Program you may be able to exclude some or all EE Bond interest from Federal income tax when you pay qualified higher education expenses at an eligible institution or State tuition plan in the same calendar year the bonds are redeemed.

Series EE Bonds issued January 1990 and later, along with all I Bonds, are eligible for this program. You aren't required to indicate that you intend to use the bonds for educational purposes when you buy them, but you must meet the program's requirements, some of which apply when you buy the bond(s). Details are available in IRS Publication 970, “Tax Benefits for Higher Education”.

Looks like older bonds can't get the education tax breaks. My son has a bunch from when he was born in 1989.

 

[NewJersey]

Now, I haven't taken/studied for this part of the CPA exam yet, so forgive me if I'm a little rusty since I haven't looked at this stuff in a year. But it was my understanding that if you don't include the annual increment in your reportable gross income yearly (accrual), then you have to include it all at once in come in the year of original maturity. For the Educational savings bonds, if they were issues after 12/31/89 and the savings bonds were issued to an individual who is at least 24 at the time of issuance, then the interest is excluded from gross income.

The expenses it can be used for are tuition and fees paid to a college for the taxpayer, and their spouse, and dependents. And tuition and fees are reduced by applicable scholarships and if the total redemption (principal and interest) exceed the qualified expenses, only a pro rata portion can be used for exclusion treatment.

Don't know if that makes sense..like I said it's been a year or so since I looked at any tax stuff in class. and it looked like Japanese then!

 

[Rella Bella]

I don't know about exemptions for tution etc., but I do know you have to claim all the interest on you Tax form... which can be significant depending on the size and age of the bond.

I have used this site to calculate how much each bond is worth... it was quite accurate. Check it out:
http://wwws.publicdebt.treas.gov/BC/SBCPrice

 

[Lynn CC]

He thinks he should wait until he's out of graduate school, since he volunteers and doesn't have a paying job he doesn't want to jeopardize his scholarships in any way.