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  • What Are Series HH Savings Bonds?

    Key Takeaways

    • Series HH savings bonds were a type of Treasury bond that directly deposited interest payments into an investor’s account.
    • These bonds matured after 20 years and paid interest every six months, but investors could cash in their bonds for the full face value at any time after a required holding period.
    • This bond program was ended in 2004, which means that the last of these bonds will mature in August 2024—unless they’re first cashed in.

    Definition and Examples of Series HH Savings Bonds

    Series HH bonds were a type of savings bond program, offered by the US Treasury, that regularly paid out interest to investors. They worked differently from Series EE savings bonds, which instead added that interest income back to the principal value of the bond.

    Investors enjoyed the passive income made possible by investing in Series HH bonds. These bonds came with face values ​​of $500, $1,000, $5,000, and $10,000.

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    This savings bond program was designed to reward patient, long-term investors who held the bonds to maturity.

    How Do Series HH Savings Bonds Work?

    When an investor bought a Series HH savings bond, they received a paper certificate that detailed their purchase. If that investor wanted to cash in the bond early, then they needed to return that paper certificate.

    While an investor held Series HH bonds, they would receive interest payments every six months. The interest was deposited directly into the bondholder’s bank account, providing a steady source of investment income that could be spent while the bond was still held.

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    Like all Treasury bonds, Series HH savings bonds were backed by the full faith and credit of the US government, which has historically provided among the lowest levels of risk possible for an investor.

    Series HH savings bonds had a minimum holding time of six months. After that, an investor could cash in their bonds for the full face value at any time.

    The Interest Rate on Series HH Savings Bonds

    The interest rate for the Series HH savings bonds was set every six months. When an investor bought a Series HH bond, they locked in that interest rate for 10 years, after which the rate could be adjusted for the next 10 years. Series HH savings bonds reach maturity and stop earning interest income altogether 20 years after the investor bought them. At maturity, the investor is repaid the face value.

    Because the last Series HH bonds were issued in 2004, some are still paying out interest.

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    Interest income received from Series HH savings bonds must be reported in the tax year it is received, but it is not subject to state and local taxes.

    Like the Series I savings bond, the Series HH savings bonds could be redeemed for full face value at any time after the minimum holding period. That means investors didn’t need to wait 20 years to get their principal back. However, once an investor receives their principal back, they stop earning interest income.

    What It Means for Individual Investors

    Since Series HH savings bonds mature after 20 years, the last of these investment vehicles will mature in August 2024, so it’s likely that there are still Series HH savings bonds out there somewhere. However, since these bonds can be cashed early, there may be fewer bonds remaining than were originally issued back in the early 2000s. The bonds that are still held will continue paying interest until they mature 20 years after their dates of issue.

    If you own a Series HH Bond, you may still be collecting interest if the bond hasn’t matured yet. You can also cash in the bond if you choose.

    While your local bank can’t directly cash out the bonds for you, it can help you take the steps necessary to receive your principal back. Those include certifying your signature on documents and helping you mail bond certificates to the appropriate Treasury Department address.

    Alternatives to Series HH Bonds

    On September, 2004, the US Treasury Department stopped offering Series HH savings bonds to investors, officially ending the program altogether. While the Treasury Department continues to offer other kinds of bonds, there is not a Series HH replacement that perfectly replicates the features of this program.

    If you’re still interested in owning savings bonds, you could choose Series EE bonds, which earn interest for up to 30 years, or Series I bonds, which earn interest that’s tied to the inflation rate.

    You could also choose other Treasury securities, such as Treasury bills, notes, and bonds, or Treasury Inflation-Protected Securities (TIPS).

  • Peter Lauria – The Balance

    Highlights

    • Has more than 20 years of experience as a business writer and editor, covering everything form the business of media to high-level economics
    • Former editor in charge of technology, media, and telecom at Thomson Reuters
    • You have managed, built, and led teams at some of the world’s largest corporations and media organizations, including New York Post, BuzzFeed, and the US Chamber of Commerce

    experience

    Peter Lauria has more than 20 years of experience as a business writer and editor. He is a strategic and innovative writer, editor, and manager, who has built and led teams at some of the world’s biggest corporations and media organizations, focusing most recently on the topics of venture capital, corporate strategy, economics, and more.

    As one of his first gigs in the financial journalism industry, Peter served as the lead media and entertainment business reporter for The New York Post, leading coverage of media, entertainment, and technology for the business section of the paper. Peter later created the business vertical and oversaw business news coverage for BuzzFeed as its first-ever business editor. He also led the technology, media, and telecommunications team for Reuters, the world’s largest news agency. Most recently, Peter served as Editor-in-Chief of USChamber.com, the website for the US Chamber of Commerce, the largest business lobbying organization in the United States.

    Education

    Peter Lauria graduated from Rutgers University in New Brunswick, New Jersey, with a degree in both journalism and sociology.

    About The Balance

    The Balance, a Dotdash Meredith brand, makes money easy to understand. We give people tools they need to not only make smart financial decisions but also prepare for the experiences they will have along the way. Our team of expert writers and editors have extensive qualifications in the topics they cover, and many of them have MBAs, PhDs, CFPs, and other advanced degrees and professional certifications. We require our writers to use primary sources in their articles, which are also approved by our Financial Review Board and fact-checked. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  • Terri Huggins – The Balance

    Highlights

    • More than 10 years of experience as a journalist covering topics like personal finance, parents, and mental health
    • Former marketing and communications professional at a real estate company
    • Host of local workshops discussing financial and contractual advice for freelance professionals
    • Has writing expertise focused on the intersection of personal finance, race, and culture

    experience

    Terri Huggins is an award-winning journalist with more than 10 years of professional experience writing about personal finance, parenting, and emotional well-being. Within her work, Terri focuses on the intersection of those topics with race and culture. Terri was first introduced to personal finance management while working at a real estate office. After that experience, she started a blog focused on running a side hustle, student debt repayment, and money management. Terri has since written for a variety of publications including The New York Times, Washington Post, Real Simple, Huffington Post, and more. In addition to her writing work, Terri is a frequent public speaker and fitness instructor.

    Education

    Terri Huggins has a Bachelor of Arts in Communication and Journalism from Rider University.

    About The Balance

    The Balance, a Dotdash Meredith brand, makes money easy to understand. We give people tools they need to not only make smart financial decisions but also prepare for the experiences they will have along the way. Our team of expert writers and editors have extensive qualifications in the topics they cover, and many of them have MBAs, PhDs, CFPs, and other advanced degrees and professional certifications. We require our writers to use primary sources in their articles, which are also approved by our Financial Review Board and fact-checked. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  • What Is an Unrecaptured Section 1250 Gain?

    Key Takeaways

    • A higher unrecaptured Section 1250 tax rate applies to long-term capital gains for which a taxpayer has previously claimed depreciation.
    • The IRC requires that claimed depreciation must be factored back in to arrive at an adjusted cost basis for calculating the amount of a capital gain.
    • The Section 1250 rate is usually 20%, compared to the 15% long-term capital gains rate that applies for most taxpayers when the asset has not been depreciated for tax purposes.
    • A Section 1250 adjusted cost basis can be offset by capital losses.

    Definition and Example of an Unrecaptured Section 1250 Gain

    Section 1250 of the Internal Revenue Code (IRC) kicks in when you sell a Section 1231 real estate asset for financial gain after claiming a depreciation tax break for it in previous years. The IRS says the gain is taxable at a pretty significant rate—higher than those for most long-term capital gains.

    Section 1231 property is typically business or trade real estate, so unrecaptured Section 1250 gains usually only come into play for non-business owners if they have rental property.

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    A capital asset becomes an IRC Section 1231 asset if it’s depreciable and you own it for more than one year before you sell or otherwise dispose of it.

    Let’s say you purchased a rental property for $200,000 in 2020. You’re entitled to depreciate it over five years. That works out to $40,000 per year: $200,000 divided by five. You claim $80,000 in depreciation in 2020 and 2021. This brings your cost basis down to $120,000 ($200,000 minus $80,000) in claimed depreciation.

    You sell the property for $250,000 in 2022. Under Section 1250 rules, you’ve realized a gain of $130,000 ($250,000 minus your $120,000 basis adjusted for depreciation), not $50,000 ($250,000 minus your $200,000 purchase price). The $80,000 you claimed as depreciation is recaptured and taxed at a maximum of 25%. Only the remaining $50,000 is taxed at the most favorable long-term capital gains tax rate of just 15%.

    How an Unrecaptured Section 1250 Gain Works

    Section 1250 tags the gain you get from selling property as “unrecaptured” when the sales price exceeds your initial cost basis in the asset, which is the total of what you paid for it and spent on maintaining it. It adjusts this basis by adding back the depreciation you claimed.

    An unrecaptured Section 1250 gain effectively prevents you from taking a double-dip tax break. It changes the rate at which realized gains are taxed with the intention of offsetting that depreciation you claimed. It prohibits you from claiming advantageous long-term capital gains rates on the entirety of your profit.

    But “offset” is the key word here in another respect. The IRC allows you to offset Section 1250 gains with Section 1231 capital losses, provided both assets were held for more than a year so both your loss and your gain are long term. This means you can subtract your loss from the amount of your gain, and pay tax on the difference.

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    A capital loss occurs when you sell an asset for less than your initial cost basis. This would be the case if you sold a $200,000 property for $175,000. You’d have a $25,000 loss, assuming you claimed no depreciation so you didn’t have to add it back in and adjust your cost basis.

    How To Report Uncaptured Section 1250 Gains

    You report uncaptured Section 1250 earnings on Form 4797, then transfer that total to Schedule D. The instructions for Schedule D include detailed explanations and worksheets to help you make your calculations. Enter the resulting tax amount on line 16 of your Form 1040 tax return.

    How Much Are Taxes on Unrecaptured Section 1250 Gains?

    The tax on unrecaptured Section 1250 gains tops out at 25%, which is considerably higher than two of the three tax rates for long-term capital gains, which ranges from 0% to 20%, depending on your income. Most taxpayers pay a 0% or 15% rate on long-term capital gains, which is at least 10% less than the unrecaptured Section 1250 rate.

    The 25% rate applies to money received in the first through fourth years if you accepted installment payments after 1999. Some gains can be taxed at 20% after the first four years, but this is still higher than the long-term capital gains tax rate for most taxpayers.