I transferred two I-Bonds from my Treasury Direct Account to my daughter's Treasury direct Account resulting in a 1099 INT for me. I paid all the federal taxes due for the transferred I-Bonds on the accrued interest up to the date of transfer. When my daughter redeems those I-Bonds will she have to pay taxes for the accrued interest that I previously paid for? If not, then how would she report the accrued interest that she is liable for to the IRS?
No, she will not have to pay tax on the amount of interest income you included on your tax return. I would recommend you providing that information to her so at the time she does cash the I Bonds and receives a 1099-INT for the full amount of interest earned on the bond, she can add an adjustment in TurboTax to reflect the amount of bond interest you already paid tax on. In TurboTax Online you can add this adjustment in the "Uncommon Situations" screen that is directly after you have entered your interest income.
Click HERE for information from IRS publication 550
No, she will not have to pay tax on the amount of interest income you included on your tax return. I would recommend you providing that information to her so at the time she does cash the I Bonds and receives a 1099-INT for the full amount of interest earned on the bond, she can add an adjustment in TurboTax to reflect the amount of bond interest you already paid tax on. In TurboTax Online you can add this adjustment in the "Uncommon Situations" screen that is directly after you have entered your interest income.
Click HERE for information from IRS publication 550