What is the IRS form for tax-exempt bonds?
Issuers of tax-exempt private activity bonds use Form 8038 to provide the IRS with the information required by Internal Revenue Code section 149 and to monitor the requirements of Internal Revenue Code sections 141 through 150.
26 U.S. Code § 149 - Bonds must be registered to be tax exempt; other requirements. Nothing in section 103(a) or in any other provision of law shall be construed to provide an exemption from Federal income tax for interest on any registration-required bond unless such bond is in registered form.
If you cashed series EE or I U.S. savings bonds this year that were issued after 1989, you may be able to exclude from your income part or all of the interest on those bonds. Use Form 8815 to figure the amount of any interest you may exclude.
Most bonds issued by government agencies are tax-exempt. This means interest on these bonds are excluded from gross income for federal tax purposes. In addition, interest on the bonds is exempt from State of California personal income taxes.
Key Takeaways
If you receive a Form 1099-INT, you'll need to include the amount shown in Box 1 on the “taxable interest” line of your tax return. Report any tax-exempt interest shown in Box 8 of the 1099-INT on the “tax-exempt interest” line of your tax return.
Exempt purposes - Internal Revenue Code Section 501(c)(3)
The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.
Tax-Exempt Interest. Interest on a bond that is used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a U.S. possession, or any of their political subdivisions.
Typically, interest from corporate bonds will be in Box 1, interest from U.S. Treasuries will be in Box 3, and tax-exempt interest from muni bonds will be in Box 8. Even if you don't have to pay income tax on the interest, you still need to include it on your tax return.
Form 8814. Department of the Treasury. Internal Revenue Service. Parents' Election To Report. Child's Interest and Dividends.
Housing credit agencies use Form 8823 as part of their compliance monitoring responsibilities under section 42(m)(1)(B)(iii) to notify the IRS of any building disposition or noncompliance with the low-income housing tax credit provisions. The housing credit agency should also give a copy of Form 8823 to the owner(s).
Do you pay capital gains on tax-exempt bonds?
As a result, you likely won't incur any capital gains tax. If, however, you purchase a municipal bond in the secondary market at a discount to the revised issue price, you can be taxed as either a capital gain or ordinary income, depending on the size of the discount and the years to maturity of the bond.
Taxable Bonds may be issued to advance refund prior Tax-Exempt Bonds, and Tax-Exempt Bonds may be issued to advance refund outstanding Taxable Bonds in certain situations, under guidance provided by the IRS Office of Chief Counsel (Chief Counsel Advice Memorandum 201843009).
Investors favor municipal bonds, or "munis," for two main reasons. They are exempt from federal taxes, and they are relatively low-risk investments. While stable, income-producing bonds warrant a position in any well-diversified portfolio, there are inherent drawbacks to owning munis.
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent.
Most organizations use Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, and the related instructions to apply. (Organizations applying for recognition of exemption under Section 501(c)(4) use Form 1024-A and its instructions.
Tax-exempt interest.
In general, your tax-exempt stated interest should be shown in box 8 of Form 1099-INT or, for a tax-exempt OID bond, in box 2 of Form 1099-OID, and your tax-exempt OID should be shown in box 11 of Form 1099-OID. Enter the total on line 2a of your Form 1040 or 1040-SR.
Tax exempt interest income can be found on IRS Form 1040-line 2a. If married, and you and your spouse filed separate tax returns, enter the total amount of your combined tax-exempt interest income. Note: The line number references above are from the IRS tax form, not from the W-2 form.
To claim exempt, you must submit a W-4 Form. Do not complete lines 5 and 6. Enter “Exempt” on line 7. Note: You must submit a new W-4 Form by February 15 each year to continue your exemption.
Tax-exempt income is income from any source which the Federal, state, or local government does not include when implementing its income tax. Individuals and organizations may have to report this income on a tax return, but the income will not be considered when determining their tax liability.
"Tax-exempt" means that the interest component of bond debt service payments is exempt from federal and sometimes state and local income taxes for the bond holder.
Do I need to report I bonds on my tax return?
The interest on your I bond falls on the same line as other interest income whether you choose to report it every year or all at once at the end of your ownership. Interest the bond earns is reported on a 1099-INT after the bond is cashed or reissued.
Tax-exempt interest is interest income that is not subject to federal income tax. In some cases, the amount of tax-exempt interest a taxpayer earns can limit the taxpayer's qualification for certain other tax breaks.
If you are waiting until your EE or I bond matures (finishes its life) to take the interest on it, you will not get a 1099-INT for that bond until we actually pay you the interest. If you have a TreasuryDirect account, you must get your 1099-INT yourself from your account.
Interest income from Treasury securities is subject to federal income tax but exempt from state and local taxes.
For paper savings bonds
The interest will be reported under the name and Social Security Number of the person who cashes the bond or who owns it when it matures. The 1099-INT will include all the interest the bond earned over its lifetime.
