To retain the tax-deferral privilege, E and EE bonds and savings notes must be exchanged for HH bonds no later than one calendar year after the bonds or notes reach final maturity. For example, E bonds purchased on any day in the month of December 1949 reached final maturity on Dec. 1, 1989. To retain tax deferral, the E bonds must have been exchanged for HH bonds no later than Dec. 31, 1990. The semiannual interest earned by the HH bonds must be reported annually for federal income tax purposes. You are liable for federal income, gift and estate taxes as well as state inheritance or estate taxes.
Savings bonds are exempt from state and local income and personal property taxes.
First, you never pay state or local income taxes on savings bonds. In addition, by waiting to report the interest on Series E and EE bonds and savings notes until you cash your bonds or until they reach final maturity, you will be earning interest on principal plus the full untaxed interest previously earned. Beginning with bonds purchased in 1990 and used to pay for qualified educational expenses, interest may be free from federal income tax as well. I want to use savings bonds to build college funds for my child. Bonds must be purchased in the names of one or both parents-not in the name of the child.