How are Inherited EE or I Savings Bonds Taxed? Kiplinger Tax Letter
It all depends on what goes into the decedent’s final income tax return.
![the word bonds on a plain blue background](https://cdn.mos.cms.futurecdn.net/3v9uKFDwgTF8kRUU22HUf8-415-80.jpg)
Getting the right tax advice and tips is vital in the complex tax world we live in. The Kiplinger Tax Letter helps you stay right on the money with the latest news and forecasts, with insight from our highly experienced team (Get a free issue of The Kiplinger Tax Letter or subscribe). You can only get the full array of advice by subscribing to the Tax Letter, but we will regularly feature snippets from it online, and here is one of those samples…
If you’ve inherited EE or I savings bonds that haven’t yet reached maturity, the federal tax rules can be complicated.
Most people who own EE or I bonds opt to defer reporting the interest as income for federal tax purposes until the earlier of the year the bonds mature or when they’re cashed in. So if you inherit EE or I bonds that haven’t yet matured, who is taxed on the predeath accrued interest?
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
It depends on how that predeath interest is treated on the decedent’s final income tax return.
If the executor elects to include all predeath interest on that final return, then the beneficiary reports post-death interest on Form 1040 when the bonds mature or are cashed in, whichever comes first.
If the executor doesn’t include predeath interest on the decedent’s final return, then the beneficiary owes federal income tax on all pre- and post-death interest on the earlier of the bond’s maturity or redemption.
The Tax Court recently addressed this exact set of facts. In the case, a man who inherited a savings bond from his dad had it reissued in his name and later redeemed it. Treasury Direct sent him a Form 1099-INT reporting interest that accrued from the date his dad bought the bond.
But the son reported on his 1040 only the amount of interest that accrued from when the bond was reissued in his name until he cashed it in. That’s wrong. The dad never reported interest earned on the bond during his lifetime, and no election was made by his executor to include all the interest on the dad’s final Form 1040 when he died (Hitchman, TC Summ. Op. 2023-18).
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business taxes and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
Read more
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.
-
Alphabet Stock Falls as Q2 Ad Revenue Growth Slows
Alphabet stock is trading lower Wednesday as slowing ad sales growth offsets a Q2 earnings beat. Here's what you need to know.
By Joey Solitro Published
-
Eight Key Steps to Take When Investing in the Stock Market
The stock market can be a confusing place for beginners, but it doesn't have to be.
By Kiplinger Advisor Collective Published
-
Car Prices Are Finally Coming Down
The Kiplinger Letter For the first time in years, it may be possible to snag a good deal on a new car.
By David Payne Published
-
Landlord With Rental Income? See if You Qualify for a 20% Tax Break
The Tax Letter Many landlords are eligible to take the 20% tax deduction for qualified business income
By Joy Taylor Published
-
Five Ways to Fund Medicare Part A
The Tax Letter Higher taxes can help stave off the projected 2036 insolvency of Medicare's Hospital Insurance trust fund.
By Joy Taylor Published
-
QCDs Are a Tax-Smart Way for Retirees To Donate to Charity
The Tax Letter With QCDs, retirees can save on taxes by making donations from their IRAs directly to charity. Here's what you need to know about qualified charitable distributions.
By Joy Taylor Published
-
The IRS is Ramping up Tax Audits
The Tax Letter Wealthy individuals, large corporations and partnerships are all audit targets, thanks in large part to the IRS's multi-billion dollar windfall.
By Joy Taylor Published
-
How to Beat Soaring Home and Auto Insurance Premiums
The Kiplinger Letter What’s behind the insurance price hikes, and what to do about them?
By Rodrigo Sermeño Published
-
How to Navigate an Extra-Busy Summer Travel Season
The Kiplinger Letter Tips for beating the exceptional crowds expected this year and keeping your vacation budget manageable.
By Sean Lengell Published
-
Biden's Plans to Impose an Income Tax on Death
The Tax Letter The president has proposed a new taxing regime that would make death an income tax realization event for wealthy decedents.
By Joy Taylor Last updated