U.S. Savings Bonds expenses

[Fotoman1]

Between 1991 and 1995 my wife and I purchased a number of U.S. Savings Bonds, series EE.  This past year due to the fact that they were matured we cashed them.  Interest is reported on a 1099INT as required.  However, I thought we would be able to deduct the cost of the purchase price of each bond but not seeing a way to do that.

Isn't the purchase price deductible against the interest?  If so, how do I input it?  

For instance, the purchase price of a U.S. Bond with a $1000 face value is $500.  Is not that amount deductible as an expense?

Thank you for your help.

Harry

[SteamTrain]

@Fotoman1 

The 1099-INT should only be showing the actual Interest you earned on the bonds.

Thus, the $$ you paid would not (normally) be included.

CLOSELY...Double check the total $$ you received vs the box 3 $$ amount on the 1099-INT.  The box 3 $$ should be significantly lower than the total $$ you received.

IF it is the same, and IF you redeemed them at a bank and the bank issued the 1099-INT, you need to go back to the bank and have them investigate.

[CatinaT1 · Accepted solution]

You are correct that your original purchase price is not taxable, but it is not handled as a deduction. Instead, the bank has already removed that amount before they issued the 1099-INT.

Series EE paper bonds bought in the 1990s were sold at a discount (exactly 50% of the face value). $500 (for a $1,000 bond) with a face value of $1,000

Let’s say you cashed out a bond for $1,300 total. The bank gave you $1,300 in cash. However, they only reported $800 on your 1099-INT ($1,300 payout minus your $500 original investment). Your $500 purchase price is considered a "return of principal" because you already paid taxes on that $500 back in the 90s when you earned it, the IRS doesn't tax it again. The 1099-INT is only interested in the profit you made.

If you enter the 1099-INT exactly as it is shown into TurboTax (your interest should be in Box 3), you are only paying tax on the "profit." You are not paying tax on the $500 purchase price.

Also, I don't know what state your are in but interest on U.S. Savings Bond are 100% exempt from State and Local taxes. This will happen automatically in TurboTax. 

[Fotoman1]

Thank you.  I understand now.

[Fotoman1]

Thank you for your very clear explanation.

[Mike9241]

You should have received a 1099-INT, which only shows the interest. 

did you get a 1099-B or other form showing they were sold or redeemed? If not, you do not report the redemption. There can be no gain or loss because the interest is added to your cost, which equals the redemption proceeds. 

[Fotoman1]

No, just a 1099INT.

[Mike9241]

that's all that's reported. box 1 should show $0 or blank and box 3 should show only the US interest. 

[Fotoman1]

That's how it is reported.

Thank you for responding.