I Bonds - is the 3 mo. interest early withdrawal penalty tax deductible like bank CD penalties are?

[agletdave]

I Bonds - is the 3 month early withdrawal penalty tax deductible like bank CD's are?

[KarenL4 · Accepted solution]

Hi, Agletdave,

You will only be taxed on the interest you receive (not the three months of forfeited interest).  Taxing on I-bonds may either be as earned, or typically, when the interest is paid out (which is when the Treasury Dept issues a 1099).

This article does a good job of explaining taxes on I-Bond interest.

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Best,

Karen