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Qualified Zone Academy Bond Credit - Internal Revenue Service

Qualified Zone Academy Bond Credit - Internal Revenue Service 2025

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Form 8860 is used to claim the Qualified Zone Academy Bond (QZAB) credit, which allows eligible taxpayers, such as banks and corporations, to receive an annual income tax credit instead of periodic interest payments for bonds issued by state or local governments to improve public schools. The form includes sections for reporting current year credits and allowable credits, with specific instructions for S corporations and other entities. It emphasizes the importance of accurately reporting the credit amount and provides guidance on how to handle unused credits.

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Begin with Part I, where you will enter the bond issuer’s name, city, and state in column (a). Next, specify the month and year the bond was issued in column (b).
In column (c), input the outstanding principal amount of the bond. Then, for column (d), determine and enter the credit rate applicable to your bond.
Calculate the credit by multiplying the amounts from columns (c) and (d) and enter this value in column (e).
If you are a shareholder of an S corporation, complete line 2a with your share of qualified zone academy bond credit from Schedule K-1. Enter the S corporation’s employer identification number on line 2b.
Finally, add all amounts from line 1, column (e) and line 2a to calculate your current year credit on line 3.

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2007	4 Satisfied (24 Votes)
2006	4.9 Satisfied (53 Votes)
2005	4.4 Satisfied (38 Votes)
1998	4.8 Satisfied (21 Votes)

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How are bonds taxed in the IRS?

How are bonds taxed? Bonds are typically taxed in two ways: when you earn interest on the bond and any capital gain on the sale.

How much tax do I pay on bonds?

The tax rate charged will depend on how long you held the bond. If youve held it for less than a year, youll be charged at your regular income tax rate. Bonds held for more than a year will be subject to potentially lower long-term capital gains rates.

Are bonds taxed as capital gains or ordinary income?

How that income is taxed depends on the underlying investments that are generating that income. The income from taxable bond funds is generally taxed at the federal and state level at ordinary income tax rates in the year it was earned. Funds that exclusively hold U.S. Treasury bonds may be exempt from state taxes.

How do I avoid paying taxes on bond interest?

You can choose not to pay federal income tax on them until you cash them or they mature, whichever is first. Under certain conditions, you can avoid federal income tax on interest by using the interest to pay for higher education.

What type of bonds are not taxable?

Income from bonds issued by state, city, and local governments (municipal bonds, or munis) is generally free from federal taxes.

What does it mean to be bond qualified?

A Bond of Qualifying Individual is a bond that serves as a legal promise regarding the compliance of the applicant to the relevant provisions of the California Business and Professions Code and the rules and regulations set forth by the California Contractors State License Board of the Department of Consumer Affairs.

How do tax credit bonds work?

Tax Credit Bonds provide periodic tax credits to the holders of the bonds. Direct Pay Bonds are a type of tax credit bond for which the issuer has elected to receive direct payments from the federal government instead of the tax credits that would otherwise be allowed to holders of the bonds.

Qualified Zone Academy Bond Credit - Internal Revenue Service 2025

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