How to transfer taxable interest to someone with a lower tax rate

My mother purchased series EE bonds for my daughter on her birthdays and Christmas. Her intent was for them to be used for a college education, so she was advised to make them out in my name and social security number with my daughter as beneficiary. My salary is too high to claim the education tax deduction, so I'd like to have my daughter cash and pay taxes on the bonds. My local bank says I must cash the bonds. How can I get the taxes on my daughter's return instead of mine? Tom's response The advice your mother received was correct, but lots of people get trapped by the income limitations on the Savings Bond education deduction. Here's a link to my page on changing the registration on a savings bond. Go there and read up on how to change the registration on these bonds to make your daughter the co-owner rather than the beneficiary. You should leave yourself as owner to avoid creating a taxable event. When you receive the re-registered bonds with your daughter's name on them as co-owner, she'll be able to cash them herself. The 1099-INT tax form that reports the interest earned by the savings bonds to the IRS is always issued with the social security number of the person cashing the bonds, so your daughter can report the interest on her return. If you had purchased the bonds yourself, rather than receiving them from your mother, the IRS would expect you to pay the tax. The IRS says, If you used your funds to buy the bond, you must pay the tax on the interest. This is true even if you let the other co-owner redeem the bond and keep all the proceeds. However, since you didn't use your funds to buy the bonds, and since your mother's gift was always meant for your daughter, this rule doesn't apply. Go forth with a clean conscience and let your daughter pay the tax at her low rate.