Savings Bond Question

[Drake3287]

Surprisingly this question has stumped everyone I've asked (even my tax person) but hopefully someone here can provide an answer. The bonds in question are worth about $4,000. each.

My 3 kids were given a EE series Savings Bond when they were born by my parents with the expectation that it could be used towards college some day. The Savings Bonds of the oldest two were in both my name and our child's name with the bond listing my social security number. When they both went to college I cashed them in and claimed them on my taxes but because they were used for higher education (I was paying for) they weren't taxed.

My third child is now in college but I noticed her Savings Bond is in her name only and has her social security number listed on it. Because I pay all her college costs how can we/she cash this bond without having to pay taxes on it? She doesn't pay any of her own college costs so if she cashed it there's no way for her to claim the higher education tax credit.

Any thoughts or idea's? I guess the basic question is how can I get her bond associated with my taxes?

[MakeAStash]

I've never done the following so don't know if it would work, but a possibility is to have your daughter give you the bond as a gift. Write up the gift on paper and show the date, perhaps even have this paper notarized. After redemption, if the 1099-INT form for the bond shows up in her SS number, use the 1099 nominee process (google that) to reassign the interest to you. For the nominee process you basically file your own 1099-INT showing, in this case, her as the payer and you as the payee.

Even better would be after the gift to have the bond retitled into your name, but I do not know if that is possible while your daughter is alive.

[doingitallwrong]

When you reissue a bond, the interest earned to date is the tax liability of the surrendering owner. (The form for reissuing says, in caps, "THE OBLIGATION TO REPORT THE INTEREST CANNOT BE TRANSFERRED TO SOMEONE ELSE THROUGH A REISSUE TRANSACTION.") So I don't think that would work.

However, how much other income does your daughter have? There's no way to avoid paying some tax on the interest, but if her other income is low it would be minimal.