Can I Donate Saving Bonds to a Charity & Avoid Paying the Accrued Interest?

You cannot donate savings bonds because federal savings bonds are not transferable -- you cannot give, sell or donate them to anyone else if they are in your name. Furthermore, the government pays you the accrued interest, not the other way around, though you probably owe income taxes on it. You however can redeem the bond and then donate the cash from interest to a charity and deduct that amount from your taxable income.

The federal government sells savings bonds to individuals and organizations. The bonds pay interest every six months and have a maturity period of 30 years. After 30 years, the government returns the principal, the amount you originally paid for the bond, plus accrued interest. Savings bonds are nontransferable, meaning that the person named on the bond is the only person who can own it.

You can also opt to redeem the bonds any time after 12 months and receive the principal plus accrued interest. If you redeem the bond within 60 months of purchase, you do not get the last 3 months of interest. To redeem a bond, you can go to a federal reserve bank or your local bank with the bond and official identification. You receive cash, plus a document stating that you redeemed a federal savings bond and received accrued interest.

Because savings bonds are nontransferable, you cannot donate the bond to a charity. You can donate the cash that you receive from redeeming the bond, however. You do not owe any tax on the principal but the interest counts as income the year you redeem the bond and you owe federal income taxes at that year’s rate; but states cannot tax the interest from federal savings bonds.

If you donate the cash from the interest to a charity, you can deduct the amount from your taxable income, effectively avoiding taxes on it. The charity must be a charity in the eyes of the Internal Revenue Service and you must receive a document from them stating that you donated the amount to them, along with a date. When you prepare your taxes, you must itemize your deductions using Schedule A of Form 1040, and enter the amount as a charitable deduction.