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jgordosea, Enrolled Agent
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Experience:  I've prepared all types of taxes since 1987.
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My mother and dad died over 10 years ago. My mother left everything

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My mother and dad died over 10 years ago. My mother left everything to me. I was going through some of the old papers the other day and found $10,000 worth of EE Bonds--all in her name.
I don't know what to do with them. They are all matured.
Will I pay income tax on them?
Thank you for any information.
Rita
Submitted: 5 years ago.
Category: Tax
Expert:  jgordosea replied 5 years ago.
Greetings,

Series EE bonds can grow tax deferred and the interest is reported when the bond is redeemed.

When you cash in the bonds, you will have to report the gain on your income tax. The basis for the bonds is the original cash basis as paid by your mother - that is, one half of the face value. This is required because the bonds have grown with interest tax-deferred, When you cash the bonds you will report as interest income the full difference between the original purchase price (paid by your mother) and what you get when you redeem them.

You may want to consider cashing some in each of two tax years (some before December 31 and some on or after January 31 to spread the tax burden over two years.

There is an exception to my answer if your mother (or the executor of her estate had elected to report the accrued interest on her income taxes but that is highly unlikely and not usually done.
The Treasury Direct Web page "Death of a Savings Bond Owner" has to say on the topic:

"Upon death of one of two people named in a bond's registration, any surviving person named on bonds as co-owner or beneficiary becomes the new owner. As the new owner, this person is required to include, on their tax return, the interest earned on the bonds for the year the bonds are redeemed or disposed of in a taxable transaction or the bonds reach final maturity, whichever occurs first.

Also, whoever files the deceased person's final, individual, federal income tax return for the year that person died has the option of reporting all interest earned on the bonds up to the date of death."
See http://www.treasurydirect.gov/indiv/research/indepth/ebonds/res_e_bonds_eedeath.htm for the full article.

I hope this helps to know you do report the interest in the year the bonds are redeemed unless the interest has already been reported.

Best wishes.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3031
Experience: I've prepared all types of taxes since 1987.
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