Case Study 2: U.S. Savings Bonds Co-owners

If a U.S. savings bond is issued in the names of co-owners, such as the taxpayer and a child, or the taxpayer and spouse, then the bond's interest is generally taxable to the co-owner who purchased the bond.

Can you determine who pays the tax on the bond interest for the situation described in the table below?

IF…	THEN tax on the bond's interest must be paid by…
Pat uses his funds to buy a bond in his name and the name of Tracy as co-owners
Pat buys a bond in the name of Tracy, who is the sole owner of the bond
Pat and Tracy buy a bond as co-owners, Pat contributes 75% of the purchase price; Tracy 25%
Spouses Pat and Tracy, who live in a community property state, buy a bond that is community property

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IF…	THEN tax on the bond's interest must be paid by…
Pat uses his funds to buy a bond in his name and the name of Tracy as co-owners	Pat
Pat buys a bond in the name of Tracy, who is the sole owner of the bond	Tracy
Pat and Tracy buy a bond as co-owners, Pat contributes 75% of the purchase price; Tracy 25%	Both: Pat pays taxes on 75% of the interest; Tracy, 25%
Spouses Pat and Tracy, who live in a community property state, buy a bond that is community property	Both spouses: If Pat and Tracy file separate returns, they generally pay one-half each.

Income — Wages, Interest, etc. Workout

Interest Income

Case Study 2: U.S. Savings Bonds Co-owners