What portion of a Series EE bond purchase is considered taxable?

The taxable portion of a Series EE bond purchase relates specifically to the interest that has accumulated at the time of redemption. When you initially purchase a Series EE bond, you acquire it at a discounted purchase price relative to its face value, and this amount is not taxable at the point of purchase.

The bond earns interest over time, and the key point for tax purposes is that the interest, which is usually paid out when the bond is redeemed, is considered taxable income. Therefore, when you cash in the bond, you need to report the interest earned as income on your tax return. This effectively makes the accumulated interest the only taxable portion when the bond is redeemed, distinguishing it from the purchase price and face value, which are not subject to tax. This treatment of interest ensures that individuals do not have to pay taxes until they realize the gain from cashing in the bond.