Savings bonds do not get a step up in basis. This is due to the fact that savings bonds do not really appreciate in value; they simply accumulate interest which is tax deferred.
Interest on the bonds is taxable in the estate or in the deceased’s final tax return. The beneficiary must pay taxes on the bond’s interest after the date of death. However, it is possible for the estate executor or administrator to assign all of the deferred interest to the beneficiary if his/her tax rates are lower than those of the deceased. Called “income in respect of a decedent,” it can result in a bigger inheritance.
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