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Tax Benefits of Using I Bonds for Education Expenses. The only way to avoid paying taxes on I bonds is to use the interest on qualified education expenses in the same tax year you redeemed the ...
If you have higher education expenses, you may be in luck. ... the interest as income on Form 1040 for the 2025 tax year when your bonds mature. You'll likely be reporting a lot of interest since ...
No taxes at state and local levels: Investors can avoid taxes on Series I bonds at the state and local levels, ensuring that all the bond’s interest goes to expenses. Cons. No federal tax ...
The interest is typically subject to federal income tax, but exempt from state and local taxes. And, if the funds from an I bond are used for qualified educational expenses, the interest may be ...
These rules prevent the avoidance of tax that might otherwise be available by characterizing the repayment as a capital gain, which is taxed at a lower rate, or by deferring the recognition of income until the bond is repaid at maturity. There are a number of exceptions to the original issue discount rule, including: Tax exempt obligations
For example, if you’re using your federal tax refund, you can buy an additional $5,000 in paper I bonds. The bonds are sold in increments of $25 or more when you buy them electronically.
Plus, the earnings in the account grow tax-free, and withdrawals used for educational expenses are also tax-free. ... Many municipal bonds are exempt from state and local taxes, and can save a ...
Many 529 plans let you deduct contributions from your state income taxes, plus the growth and withdrawals are tax-free when used for qualifying education expenses. Student Loan Interest