Let's say I cash out some government savings bonds with a face value of $2,000. Since they are 10% bonds the total amount I get when I cash them out is $2,200.
Do I owe taxes on the full $2,200 (principal and interest) or only on the $200 interest?
Everything I am reading says that the interest of earnings from bonds is taxable, but an IRS notice I just received seems to imply that I owe taxes on the entire amount.
Anyone know and have a source they can point to? Thanks!