Can I switch to reporting Govt (I) Bond interest yearly if I did not report interest in the first tax year I owned them?

[agletdave]

I understand once I report my I-bonds interest yearly that I must continue to do so. However, If I bought I-bonds in 2021 and already filed my return without reporting that interest from 2021, can I begin to report yearly interest in tax year 2022? I'm not concerned with missing 2021, however, I'm trying to average my income yearly instead of having a "big income" year, because my state (MI) has a property tax credit based on "total household resources" that includes non-taxable interest.

Also, do I need to report to Treasury Direct that I am electing to report interest yearly??

[JulieS · Accepted solution]

Yes, you can choose to report the savings bond interest after the first year, but you must report all of the interest earned to that date.  

Here is an excerpt from IRS Publication 550. Method 1 is reporting interest at redemption, method 2 is reporting interest annually.

"If you want to change your method of reporting the interest from method 1 to method 2, you can do so without permission from the IRS. In the year of change, you must report all interest accrued to date and not previously reported for all your bonds.

Once you choose to report the interest each year, you must continue to do so for all Series EE, Series E, and Series I bonds you own and for any you get later, unless you request permission to change."

So, you can wait until 2022 and report all of the interest earned in 2021 and in 2022 on your 2022 tax return. You will need to continue reporting your interest annually, unless you request permission to go back to method 1. 

You need to keep track of your interest reported each year, because in the year the bonds mature, or are redeemed, you will get a 1099-INT reporting all of the interest and you will need to adjust that amount based on your records. 

[agletdave]

Thank you Julie. Do you also know, do I have to report the interest for each individual bond separately each year, or can they be lumped together?  Same question, if I cash out multiple bonds in a year, can I lump them together in one 1099?

[ErnieS0]

You can lump together all your interest, The US Treasury should send you a 1099-INT with the total. This would be one entry. TurboTax allows you to make an adjustment for interest previously reported.

That said, if you cash out multiple bonds, if may be easier for you to list them individually for your convenience since each one will have a different amount and adjustment.

[SteamTrain]

I'm not necessarily an expert in Treasury Direct, but I have had an account there for a number of years.

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No, Treasury Direct does not have a way to indicate that you will be reporting every year...AND...keeping track of the interest accrued each year might be a nightmare unless you only have a couple bonds...and you have to remember to use your account access every year to actually track what was accrued each year. Your own spreadsheet of all your bonds and it's year-end value every year would help.

True, that would be a nice option for Treasury Direct to have an "option" to include a yearly 1099-INT.  But as far as I've ever seen, (and as they state themselves) they only issue a final 1099-INT once you actually redeem any bonds, or any of them mature in a particular year.  And they don't send them out...you log into your account to get the 1099-INT as a download.

See:

Individual - Tax Considerations for I Bonds (treasurydirect.gov)