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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22638
Experience:  Taxes, Immigration, Labor Relations
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I am an executor filing a final return. I have elected to

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I am an executor filing a final return. I have elected to claim the US Savings Bond interest earned thru date of death against the final 1040. Exactly how and where do I do that in Schedule B and 1040 and do I need any documentation to attach with return for explanation? I have all the interest amounts by using the savings bond wizard.


 


Nothing I can find tells me exactly how to fill out the 1040 and Schedule B since I do not have 1099-INT on this interest and every publication says the election can be made and done on the final 1040 but not specifically HOW to do that.

Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
The US Savings Bond interest is reported by the payer on form 1099INT - and as such - it is reported on form 1040 schedule B line 1 - http://www.irs.gov/pub/irs-pdf/f1040sb.pdf
Assuming the form 1099INT is issued in the name of the decedent - you will report the full amount and on the following line subtract the amount reported on the estate's income tax return - identify this adjustment as “US Savings Bond Interest Reported by the estate.”


If the form 1099INT is issued in the name of the estate - just report a portion of the interest of the final tax return- and you will do adjustment on the estate's tax return.

Customer:

Thank you - this part I have. The 1099-INT was issued in name of beneficiary who redemmed bonds and I have correctly shown that on beneficiary's return with the full amount reported on the 1099 and then noted adjustment made for US Savings Bond Interest previously reported.

Customer:

On the decedent's return, how do I account for the interest accured thru date of death?

Customer:

There is no 1099 for the decedent since it is accrued int thru DoD .

Customer:

My only sticking point is the decedent's return in reporting this interest (over 30K) without some way for IRS to identify the source.

LEV :

Sorry for delay.
On the decedent's return, how do I account for the interest accrued through date of death?
Interest accrued up to the date of death is identified on schedule B as US Savings Bond Interest up to the date of death."
Because it is not reported to the decedent - no adjustment is needed on the final tax return for the decedent - but the adjustment would be needed to the beneficiary's income tax return.
There is no need to add any supporting documents.
You MAY but you are not required to add any explanation of supporting documents. You need to keep your calculations with other tax documents in case the IRS would request them - otherwise - nothing you need to attach to the tax return.

Customer:

Thanks - sorry, one question to follow up -

LEV :

Sure - I am with you.

Customer:

I have adjusted the bene's return to subtract the amount attributable to the decedent so the bene only pays the taxes on the interest accrued after DoD. But if I don't adjust the decedent's return, how will the gov't be able to tax it? I'm sorry - I just don't know how to document it on the Schedule B for decedent since I don't have a 1099 issued to them. Does the bene issue one to the decedent in the amount of interest the decedent is reporting?

Customer:

Re-reading your answer - sounds like I just need to manually type in the Interest Accrued thru DoD and put in the amount (I'm using TurboTax) and then I am good. I have all the spreadsheets with the bond numbers and interested amount thru March 2012 (DoD) so it is easily reviewed. I just didn't know if there was anything else.

Customer:

Unfortunately (and as expected) the decedent now owes $ : ) where none was owed before on final return.

LEV :

I feel that based on your logic the IRS is tracking any amounts of income - that is not correct.
The IRS mainly based on information from tax returns the we - taxpayers provide.
They have some additional reporting requirements to provide cross check - but there is no 100% cross check.
In some situations - they might audit the taxpayer and verify if the information on the tax return is correct - but otherwise - whatever is on the tax return is assumed and correct and complete.
No need to issue 1099 to the decedent. That is done only in case income is received by a nominee - not by the person to whom it is reported. It might be helpful to attach a note with decedent's name and SSN - so the IRS could verify the amount reported on the final tax return of the decedent - but that is not required.

LEV :

On schedule B - when we need to identify the payer – put US Savings Bond Interest up to DoD."
Yes - the decedent might owe - but most likely the tax rate is lower than to the beneficiary.
In any case - you may choose which way is more beneficial.

Customer:

Thank you for your help. I'm more paranoid of the audit piece, esp. being a bene and the executor. I think this should do it and yes, she was in a much lower bracket and had significant medical expenses to help offset.

LEV :

So - your choice to report interest on the decedent's final tax return might be a better option.
Please be aware of other accepts - for instance - larger amount of social security benefits might be taxable - verify amounts on line 20b before and after adding interest.
Also – if you deducting medical expenses which are based on 7.5% AGI floor – additional income does raise that floor.

Customer:

Thanks for that - she only had about 67K total income - 40K was interest on the bonds and 22K was pensions/annuities, offset with 3000 loss carry forward and about 32K in itemized ded. so we're still better off using her tax bracket for the interest - all in about $1800 due in income tax still leaves over 40K to dist to benes. This was great and I will finish the service and give the rating. Have a good day!

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22638
Experience: Taxes, Immigration, Labor Relations
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