US Savings Bonds cashed twice by

[dwb4997]

Situation:  Relative A reported that 30 US savings bonds were misplaced/lost in 2015.  After searching, in 2016 A filed with the US Treaury to have the 30 bonds replaced and in addition to having the 30 replaced, relative A also cashed them in at that time.  Interest was reported on A's 2016 tax return and taxes were paid.  In 2024, relative A is older now, a little diminished in capacity, and A "found" the 30 "lost" bonds while going through some boxes and subsequently took them to a local bank and cashed them.  A received the interest on the 30 bonds during 2024 and later in early February 2025 A receinved a 1099-INT from the bank to report the US bond interest income on A's 2024 tax return.  Later that same week in February 2025, A received a debt collection letter from the US Treasury stating that the 30 bonds had already been cashed and therefore A owed the Treasury not only the interest that was paid (as listed on the 1099-INT) but also the principle from the 30 bonds since A also received those funds along with the interest.  After verifying the debt letter was legal, A repaid the whole debt amount owed to the US Treasury around the middle of February, 2025.  

In this situation, A is planning to report the 1099-INT form interest paid to A by the bank as well as listing the principle income as a misc income amount on A's 2024 tax return so this will include all of the funds that A received as income from the 30 bonds in 2024.  

Question:  how and when does A report the repayment of this debt to the US Treasury on A's tax return?  Since A has not yet filed A's 2024 return, can A claim a corresponding deduction amount on A's 2024 return since the whole repaid (interest and principle) amount was for the 2024 debt?  If A can claim the repayment as a deduction on the 2024 return where would it be claimed using turbo tax drop downs and or on which forms?  Could the total amount of the repaid debt (interest and principle) be entered as a misc deduction under deductions and credits or somewhere else?  OR because the 2024 debt was repaid in 2025 are we dealing with a situation where the 2024 has to be filed with the 1099-INT and the overpaid principle as misc income without the 2025 repayment being included in the 2024 return and then the debt repayment has to be reported and claimed on the 2025 return since it was repaid in 2025?  If so, then how would that repayment be reported on the 2025 tax return and on which line and or which form? 

All assistance greatly appreciated.   

[ThomasM125]

Since she received the funds in 2024, she should report that as income in that year. In 2025, she can process a claim of right to get a credit or deduction relating to the income reported in 2024 if the amount in question is over $3,000. 

To report a claim of right repayment credit in TurboTax follow these instructions:

1. Using the desktop version of TurboTax, bring up the "Forms" mode by clicking on that icon on the menu bar
2. Choose the 1040/1040SR Wks in the list of forms
3. Scroll down the 1040/1040SR Wks until you see Schedule 3, Part II - Other Payments and Refundable Credits 
4. Enter the amount of the credit on line 12 (D) Claim of Right, IRC 1341 credit for repayments of prior year income

If you haven't filed your 2024 tax return yet, make a note of the change in tax when you enter the income from the bonds, the difference will be the credit amount you enter when you do the claim of right entry. 

If you already filed your 2024 return, you may need to amend it to determine the change in tax. You will see on option for this on your home page in TurboTax, under Your tax returns and documents at the bottom of the page. You will not file the amended return, you just need to remove the income that was paid back to determine the tax you paid on it. It will be the difference in tax due or refunded when you remove the income you paid back.

You can download your online TurboTax program to your computer so you don't have to re-enter all of your information. You will see an option for that on your left menu bar while working on your program in TurboTax. Look for the Tax Tools menu option, then Tools, then see the option on the right to  Save your (year) return to your computer.

Income repayment of less than $3,000 can only be deducted as a miscellaneous itemized deduction, which is not allowed for tax years beginning after 2017 through 2025. If the amount is over $3,000, it is entered on line 16 of Schedule A (Itemized Deductions) as an Other Deduction if you want the deduction in lieu of the credit.

[Edited 3/14/25 at 5:08 AM PST]

@dwb4997 

[dwb4997]

Thank you for the information. Your response is greatly appreciated. 

Just to confirm, even though A has not filed the 2024 return yet the repayment adjustment cannot be made on the 2024 return because the debt repayment was done in 2025?  Therefore A has to wait until 2025s return to claim the right of repayment?  So, ONLY IF, the debt had been fully repaid in 2024 after the bonds had been cashed would A have been able to make both of these adjustments on the same 2024 return since it all happened in 2024?  But since the bond funds were received in 2024 and the debt was repaid in 2025 that is the reason A cannot do both adjustments on the 2024 return, correct?

Therefore only the bond overpayment is reflected on the 2024 return with the corresponding higher tax due payment and only the claim of right repayment for that overpaid tax amount will be included on the 2025 return which will recapture the "overpaid tax" from 2024, is that correct?