Do I have to pay tax on inherited savings bonds?
[the other choice is to pay the income tax on the interest each year, even though the interest is not received until the bond is redeemed]. As a result, when inheritors redeem inherited bonds on which the tax has been deferred, they will owe tax on all the interest that has accumulated.
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.
TO CASH BONDS FOR A DECEDENT'S ESTATE:
Series EE, Series E, and Series I bonds can be cashed at a local financial institution. Some of these transactions may have to be forwarded for further processing. Series HH and Series H bonds must be sent to one of the addresses shown at the bottom of the following page.
You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you're using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including: Tuition.
| Situation | Who owes the tax |
|---|---|
| You use your money to buy a bond that you put in your name with a co-owner | You owe the tax |
| You buy the bond but someone else is named as the only owner (for example, your child) | The person who is named as the owner (not you) |
If a surviving co-owner or beneficiary is named on the savings bond, the bond goes directly to that person. It does not become part of the estate of the person who died. If you are the named co-owner or beneficiary who inherits the bond, you have different options for paper EE or I bonds and paper HH bonds.
These bonds can be passed down through a will or as a beneficiary designation. Inherited savings bonds can be a valuable asset for beneficiaries, as they can provide a source of income or a lump sum payout. It is important to note that inherited savings bonds are subject to federal estate tax.
Note: Do not buy savings bonds from someone else or in an online auction site. You cannot cash them. You can only cash bonds that you own or co-own unless you have legal evidence or other documentation that we accept to show you are entitled to cash the bond. How do I know how much my bond is worth?
After the one-year mark, you can go ahead and cash in your bond, but you will get hit with a penalty of three months' interest earned on the bond. There is no penalty if you simply hold onto the bond after five years. There is value in holding onto most bonds.
| Face Value | Purchase Amount | 30-Year Value (Purchased May 1990) |
|---|---|---|
| $50 Bond | $100 | $207.36 |
| $100 Bond | $200 | $414.72 |
| $500 Bond | $400 | $1,036.80 |
| $1,000 Bond | $800 | $2,073.60 |
Will I get a 1099 for cashing in savings bonds?
If you cash a paper savings bond by mailing it to Treasury Retail Securities Services, we mail you a 1099 by January 31 of the following year. (You can call us for a duplicate statement, if needed, beginning February 15.)
Municipal Bonds
Most bonds issued by government agencies are tax-exempt. This means interest on these bonds are excluded from gross income for federal tax purposes.
If you moved your EE bond into a TreasuryDirect account, we pay you for the bond as soon as it reaches 30 years and stops earning interest. If you still have a paper EE bond, check the issue date. If that date is more than 30 years ago, it is no longer increasing in value and you may want to cash it.
The rate you'll pay on bond interest is the same rate you pay on your ordinary income, such as wages or income from self-employment. If, for example, you're in the 37% tax bracket, you'll pay a 37% federal income tax rate on your bond interest.
If the bond is redeemed by the Treasury Retail Securities Site, they are responsible for issuing the 1099-INT. The 1099s are issued in the year following the redemption, please allow time for the 1099-INT to be mailed to you. If the 1099-INT was not received your, please call 1-844-284-2676 to request a duplicate.
When you cash in a paper EE or I bond, sign both your name that is on the bond and your current name with the reason for the name change. When you cash in a paper EE or I bond, sign your correct name. You do not need to do anything. The address on your paper EE or I bond was just to mail it to you.
For inherited bonds, the cost basis is generally the market value of the bonds at the date of the original owner's death, known as the “step-up in basis.”6 This can significantly differ from the deceased's original purchase price.
You can gift a savings bond to adults or children.
A good place to deposit a large cash inheritance, at least for the short term, would be a federally insured bank or credit union. Your money won't earn much in the way of interest, but as long as you stay under the legal limits, it will be safe until you decide what to do with it.
The individual owns the U.S. Savings Bond if only his or her name appears on it. The Social Security Number shown on a bond is not proof of ownership. EXAMPLE: A U.S. Savings Bond title reads, “John Smith.” Only John Smith can cash that bond.
How many beneficiaries can you have on a savings bond?
You cannot “split” beneficiaries on a Savings Bond. You get to name one person — either as co-owner or beneficiary. So if your brother dies before you, you'll have to name one person.
There is no federal inheritance tax. In fact, only six states — Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania — impose a tax on inherited assets as of 2024. Iowa Department of Revenue. Iowa Inheritance Tax Rates.
If the value of the bonds exceed $100,000 or the estate is being administered by a court, the personal representative (meaning the executor or administrator) of the estate can redeem the bonds by mailing evidence showing his or her appointment as personal representative, a certified copy of the owner's death ...
For those fully matured bonds remaining unredeemed, there is no active program by the Bureau to locate the bondholders and pay them the proceeds to which they are entitled. Traditionally, it has been up to the registered owner to remember to redeem the matured bond decades after the initial purchase.
If you have a paper savings bond but your bank can't cash it, you'll need to redeem it online at TreasuryDirect or at a financial institution that will cash savings bonds for non-account holders.
