in 2020 I cashed in Series EE bonds that had been gifted to my daughter when she was a child by her grandmother. Daughter was listed as owner and her SS # was on the face, and additionally, my name was on the face of the bond as well (remember she was a minor child when the bonds were issued) , but I cannot recall how I was designated (co-owner?). I cashed the bonds because they were in my possession, and she lives in WA, and needed the funds to pay tuition (she is in a Masters degree program)
I wired the money directly to my daughters school and paid part of her tuition with those proceeds. My daughter is 29, and no longer my dependent.
I received a 1099INT from the bank that cashed the bonds, and am having to pay nearly $600 in income tax. Is there anything I can do to avoid that tax? The bonds legitimately belonged to my daughter, and the funds went directly toward her higher ed expenses. I cant find a way on TT to correctly reflect that.
Help??? Thanks in advance!
If you weren't the rightful owner of the bonds, then you don't have to pay tax on the interest income. You would have to report the bond interest as you normally would on your tax return, then enter a negative adjustment to income to cancel it out, along with an explanation and then mail your tax return in.
You enter the negative adjustment by using the following menu tabs in TurboTax:
- Income and expenses
- Less common income
- Miscellaneous income
- Other reportable income
Enter a description of the entry (mis-assigned income?) and enter the amount as a negative number
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The bonds are not eligible for education interest exclusion for several reasons. As ThoamsM125 said you can shift the interest to her and she may be in a lower tax bracket.
After entering the 1099-INT, you will be aske if any of these exceptions (list on screen) apply. Select I received this interest as "Nominee" (or some such wording). TurboTax will show the deduction on Schedule A. (Do not use the negative adjustment described by ThomasM125).
If the bank allowed you to cash the bonds, you were most likely co-owner.