Interest rates on Series EE and Series HH savings bonds have been sweetened to reflect the higher yields generally available on most other types of investments.
All Series EE bonds purchased after Oct. 31, 1980, will earn 7 percent a year (compounded semi-annually) if held to maturity. Intermediate yields on bonds redeemed before their original maturity dates are also increased correspondingly.
Series HH bonds purchased after Oct. 31 and held to maturity will earn interest at a level rate of 7 1/2 percent. (Interest on HH bonds is paid in cash semiannually.)
There is no need to cash in your presnet holdings to buy the new issues. The yields on outstanding bonds of both series have been increased similarly, effective with the first semi-annual interest period beginning after Oct. 31.
Until recently, savings bond interest rates were set by legislation -- a slow and uncertain process. Now, however, the secretary of the Treasury, with approval of the president, may raise rates by as much as 1 percent in any six-month period.
Accordingly, a further rate increase of up 1 percent can be declared as early as May 1, 1981, depending on money market conditions. c
Federal income tax liability on Series EE bonds may be deferred until the bonds are redeemed. Tax on semi-annual interest payments on Series HH bonds is due in the year received. Interest on both series is subject to federal income tax but exempt from state and local income tax.
Question: My father was recently forced to retire due to ill health. My parents would like to continue living in their present home, but it will be a very tight squeeze on their reduced income. If I make their mortgage payments for them, can I deduct the interest and taxes on my income tax?
Answer: If you make the monthly payments on your parents' mortgage, any tax deduction for interest and property tax will be lost.
Your parents won't be able to claim the deduction -- even assuming they had enough income to file a return -- because it is available only to the person who actually makes the payments.
And you won't be able to claim it either, because a deduction for interest and taxes is valid only if you are legally liable for the payments. If you have no such legal liability, the payments will be considered a gift to your parents.
Check with the bank (or other institution holding the mortgage) to see if it is possible for you to assume liability for the payments without actually refinancing the mortgage.
(The cost of refinancing probably would negate any tax savings you might realize for some years -- aside from the likelihood of having to pick up a much higher interest rate.)
If acceptable to the bank, such an action should validate the interest deduction. Then talk to the real estate tax administrator in your county about taking over liability for the property taxes on the house while leaving the property in your parents' name.
Q: In a recent column you said I have to file an estimated tax return if I expect to owe $100 or more in federal income tax when I file my return next spring. When I asked my tax accountant about it, he said I don't have to worry as long as at least 80 percent of the total tax liability is withheld during the year. In my case the 20 percent balance would be a lot more than $100. Who's right?
A: Strange as it may seem, we both are. The tax regulations require that you file a declaration and make quarterly payments if you expect your federal tax bill for the year to exceed the amount witheld by $100 or more.
But a penalty is assessed only if the amount withheld turns out to be less than 80 percent of your total tax liability.
So to comply with the law you should file Form 1040-ES, Declaration of Estimated Tax for Individuals -- and a cardinal rule both in my private practice and in writing these columns has always been compliance with the law.
At the same time, honesty compels me to say that your tax preparer is right.
In terms of both penalty and interest, you will not be assessed for the shortfall as long as the difference between total tax liability and total withholding is held to less than 20 percent.