Thanks for your reply but it does not, I believe answer my basic question. Let me rephrase: if I sell an I bond that I have held for more than a year, do I consider the accrued interest a long-term capital gain (taxed at 15%) or interest income (taxed at my regular income bracket)? Thanks
Also, you wrote "However the cost basis is also increase by $500 so the selling price and purchase price should create a little to no gain on the sale." I have no idea what you mean by the cost basis increasing by $500 as well. The cost basis should not change.
