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True or False. Taxpayer (“T”), a cash basis individual taxpayer, bought a bond for $8,760 on...

  1. True or False. Taxpayer (“T”), a cash basis individual taxpayer, bought a bond for $8,760 on January 1, 2019, with a maturity value of $10,000 on January 1 2022 (meaning there are no scheduled payments other than the $10,000 received at maturity).  Assume the yield to maturity is 4.5% on an annual basis.  If the bond is a series EE government bond T will not be required to include any gross income in 2019, but if the bond is issued by a corporation, T must include $394.20 ($8,760*4.5%) in gross income in 2019?

______  (Write “T” for true or “F” for false)

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Answer #1

True.

Reason: Interest on corporate bonds is taxable interest as per the IRS rules. Only EE series bonds are excluded from income.

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