How you sell bonds depends on what type you hold. U.S. savings bonds (Series E, EE, and I) are redeemed directly through the Treasury, either inside a TreasuryDirect account or by mailing paper certificates with a signed form. Corporate bonds, municipal bonds, and marketable Treasury securities are sold through a brokerage account on the secondary market at whatever price a buyer will pay that day. The paperwork is different for each path, and so is the way the IRS treats the money you receive.
Identify What You Actually Own
Before you do anything else, figure out which category your bond falls into, because mixing them up will get your request rejected.
Savings bonds are non-marketable securities issued by the U.S. Department of the Treasury. You cannot sell them to another investor and you cannot route them through a broker. You redeem them with the government, which pays you the purchase price plus accumulated interest. These bonds are governed by federal regulations including 31 CFR Part 353 for definitive Series EE and HH bonds and Part 360 for Series I bonds.1Legal Information Institute. 31 CFR Part 353 – Regulations Governing Definitive United States Savings Bonds, Series EE and HH
Marketable bonds, including corporate debt, municipal obligations, and Treasury notes and bonds, trade on the secondary market through a brokerage. Each one carries a nine-character CUSIP number assigned by the Committee on Uniform Securities Identification Procedures, which your brokerage statement will display next to the holding. Price is whatever the market is paying, and that depends on current interest rates, the issuer’s credit, and how much time is left to maturity.
Selling U.S. Savings Bonds
Check the Holding Period First
Series EE and I bonds cannot be cashed until at least 12 months after the issue date. Outside of certain disaster situations, there are no exceptions, and the Treasury will reject an early request.2TreasuryDirect. Minimum Holding Period for Savings Bonds Extended to 12 Months
Even after that first year, cashing within the first five years costs you the last three months of accrued interest as a penalty.2TreasuryDirect. Minimum Holding Period for Savings Bonds Extended to 12 Months If you can hold just past the five-year mark, you keep every cent of interest the bond has earned.
Electronic Bonds in a TreasuryDirect Account
If the bond lives in a TreasuryDirect account, cashing it takes a few minutes online. Log in, open ManageDirect, and choose the redemption option under “Manage My Securities.” Select the bonds, confirm, and the funds land in the bank account linked to your profile. You can redeem part of an electronic bond, with a minimum redemption of $25.3TreasuryDirect. Cashing EE or I Savings Bonds
Paper Bonds
Many banks and credit unions will cash paper savings bonds on the spot if you’re an existing customer and the total falls within their internal limits. Bring the bonds and a valid ID.
If your bank won’t do it, you mail the bonds to the Treasury along with FS Form 1522, titled Special Form of Request for Payment of United States Savings and Retirement Securities. The form asks for your full legal name, Social Security number, and for each bond the series type (EE, I, or E), issue date, and face amount. The serial number on the face of each certificate is the key identifier.3TreasuryDirect. Cashing EE or I Savings Bonds Errors on any of these fields will delay processing.
When the total redemption value exceeds $1,000, your signature on FS Form 1522 must be certified by an authorized officer at a bank, trust company, or credit union.3TreasuryDirect. Cashing EE or I Savings Bonds That is a signature certification, not a notary stamp. Most banks offer it, sometimes for a small fee. Leave the bonds unsigned, enclose the completed form, and mail the package to Treasury Retail Securities Services, P.O. Box 9150, Minneapolis, MN 55480-9150. Use registered or certified mail with tracking: the risk of loss stays with you until the package arrives.
Selling Marketable Bonds Through a Brokerage
Selling a corporate, municipal, or Treasury marketable bond works much like selling a stock. Locate the security in your brokerage account by CUSIP, place a sell order, and the broker executes at the current market price.
If you still hold physical bond certificates rather than book-entry positions, you’ll need to deliver them to the broker with a Medallion Signature Guarantee before the transfer can process. The Medallion is stricter than an ordinary signature certification because it limits the transfer agent’s liability if the signature later proves forged.4Investor.gov. Medallion Signature Guarantees – Preventing the Unauthorized Transfer of Securities
As of May 28, 2024, most securities transactions in the United States settle on a T+1 basis, meaning your cash is available the business day after the trade.5U.S. Securities and Exchange Commission. SEC Chair Gensler Statement on Upcoming Implementation of T+1 Settlement Cycle Government securities had already been running on T+1, so the shift primarily brought other instruments into alignment.6FINRA. Understanding Settlement Cycles – What Does T+1 Mean for You
How the IRS Taxes Your Proceeds
The tax treatment turns on what you sold and what kind of income the money represents. Savings bond interest, capital gains on marketable bonds, and accrued interest between coupon dates each follow different rules, and this is where most reporting mistakes happen.
Savings Bond Interest
When you cash a savings bond, the gap between what you paid and what you receive is taxable interest, not a capital gain, and it is taxed at your ordinary income rate. Most people use what the IRS calls “Method 1,” deferring all the accrued interest until the year the bond is cashed. You can instead report the annual increase in redemption value as interest income each year. If you switch from deferral to annual reporting, you must report all previously unreported interest in the year of the change and keep using the annual method going forward.7Internal Revenue Service. Publication 550 – Investment Income and Expenses
The institution that cashes the bond will send you a Form 1099-INT.8IRS.gov. Instructions for Forms 1099-INT and 1099-OID If you had been reporting interest annually, adjust the 1099-INT amount on your return so you don’t double-count interest you already paid tax on.
Capital Gains and Losses on Marketable Bonds
When you sell a corporate, municipal, or Treasury marketable bond, the difference between your cost basis and the sale price is a capital gain or loss. Your broker reports the sale on Form 1099-B, which shows gross proceeds and, for covered securities, your cost basis.9Internal Revenue Service. Instructions for Form 1099-B You report each sale on Form 8949 and carry the totals to Schedule D.10Internal Revenue Service. Instructions for Form 8949
One trap: if you sell between coupon dates, the buyer pays you the interest that has accrued since the last payment. That accrued interest is ordinary income to you and belongs on your 1099-INT, not in your capital gain calculation.8IRS.gov. Instructions for Forms 1099-INT and 1099-OID The buyer later subtracts the same amount from the next full coupon. Check that the proceeds on your 1099-B don’t quietly include that accrued portion, or you’ll overstate the gain.
Zero-Coupon Bonds and Original Issue Discount
Zero-coupon bonds are bought at a discount and pay nothing until maturity, but the IRS doesn’t let you wait that long to report income. You include a portion of the original issue discount (OID) as ordinary income every year, even though no cash has reached you.11Internal Revenue Service. Publication 1212 – Guide to Original Issue Discount (OID) Instruments This is sometimes called phantom income.
Your broker or the issuer sends a Form 1099-OID showing the amount for the year, provided it is $10 or more and the bond’s term exceeds one year.11Internal Revenue Service. Publication 1212 – Guide to Original Issue Discount (OID) Instruments Report it on Schedule B. Each year’s OID also increases your cost basis, so by the time you sell or the bond matures, most of the gain has already been taxed.
Check the Education Exclusion Before You Cash Savings Bonds
If you plan to use the proceeds for qualified higher education expenses, Series EE or I bonds can produce completely tax-free interest, which is worth confirming before you push the redeem button.
The bonds must have been issued after 1989, and you must have been at least 24 years old at the time of issue. A bond a parent bought in a child’s name does not qualify, by either the parent or the child.12Internal Revenue Service. Form 8815 – Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
Qualified expenses include tuition and fees, and contributions to a 529 plan or Coverdell Education Savings Account, but not room and board. The exclusion phases out at higher income. For the 2025 tax year, the phase-out starts at $114,500 of modified adjusted gross income for single filers and $179,250 for married couples filing jointly, with annual inflation adjustments. Married filing separately disqualifies you entirely. If you qualify, claim it on Form 8815.12Internal Revenue Service. Form 8815 – Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
Watch Out for the Wash Sale Rule If You Sell at a Loss
Sell a bond at a loss and buy a substantially identical bond within 30 days before or after the sale, and the IRS disallows the loss under the wash sale rule.13Office of the Law Revision Counsel. 26 U.S.C. 1091 – Loss From Wash Sales of Stock or Securities The statute covers “stock or securities,” so bonds are in scope. The disallowed loss is not gone forever; it is added to the cost basis of the replacement, which lowers your gain (or raises your loss) when you eventually sell that one.
Bond funds with automatic reinvestment are where this most often ambushes people. Sell the fund at a loss while reinvestment is still on, and you’ve triggered a wash sale without touching the buy button. Brokers report wash sale adjustments in Box 1g of Form 1099-B, but it’s worth a quick look yourself before filing.
Penalties If You Don’t Report Bond Income Correctly
The IRS stacks separate penalties for different kinds of errors. If you file but don’t pay the full tax owed, the failure-to-pay penalty is 0.5% of the unpaid balance per month or partial month, capped at 25%.14Internal Revenue Service. Failure to Pay Penalty That rate rises to 1% per month once the IRS issues a notice of intent to levy and 10 days pass without payment.15Internal Revenue Service. Topic No. 653 – IRS Notices and Bills, Penalties and Interest Charges
If you don’t file at all, the failure-to-file penalty is 5% per month, also capped at 25%. Both penalties can run at the same time, so skipping both the return and the payment runs up charges fast.15Internal Revenue Service. Topic No. 653 – IRS Notices and Bills, Penalties and Interest Charges A separate accuracy-related penalty of 20% can apply if the IRS finds a substantial understatement of income. Report your proceeds completely and on time; fixing an honest mistake before the IRS flags it almost always reduces or wipes out the penalty.