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posted May 31, 2019 10:55:01 PM

Inherited savings bond

my wife inherited series EE savings bonds from her mother who died in 2016.  The interest accrued on these bonds when we cashed them in last year should be reported under her mother's final tax return yet the 1099 we received from the bank has my wife's ssn on it because she cashed them in.  How do I handled this.

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1 Best answer
Level 13
May 31, 2019 10:55:03 PM

I don't know if you're correct in your assertion that all the interest on that 1099-INT should be reported under the mother's final income tax return or not.  Here's the IRS's instructions (I've added emphasis:(

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Decedent who reported interest each year.   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. The person who acquires the bonds includes in income only interest earned after the date of death.

Decedent who postponed reporting interest.   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways.

  1. The surviving spouse or personal representative (executor, administrator, etc.) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. The person who acquires the bonds then includes in income only interest earned after the date of death.

  2. If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate.

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Since the 1099-INT has your wife's name and Social Security number on it, enter the 1099-INT using the "Interest on 1099-INT" interview.  If you intend to report some amount of the interest in the final return of your wife's mother you tick the "need to adjust the taxable amount box" on the next page, and on the page following that enter the amount of interest the final return will be reporting and click the radio button next to "I am a nominee."

Tom Young

1 Replies
Level 13
May 31, 2019 10:55:03 PM

I don't know if you're correct in your assertion that all the interest on that 1099-INT should be reported under the mother's final income tax return or not.  Here's the IRS's instructions (I've added emphasis:(

--------------------------------------------------------------------------------------------------------------------------

Decedent who reported interest each year.   If the bonds transferred because of death were owned by a person who used an accrual method, or who used the cash method and had chosen to report the interest each year, the interest earned in the year of death up to the date of death must be reported on that person's final return. The person who acquires the bonds includes in income only interest earned after the date of death.

Decedent who postponed reporting interest.   If the transferred bonds were owned by a decedent who had used the cash method and had not chosen to report the interest each year, and who had bought the bonds entirely with his or her own funds, all interest earned before death must be reported in one of the following ways.

  1. The surviving spouse or personal representative (executor, administrator, etc.) who files the final income tax return of the decedent can choose to include on that return all interest earned on the bonds before the decedent's death. The person who acquires the bonds then includes in income only interest earned after the date of death.

  2. If the choice in (1) is not made, the interest earned up to the date of death is income in respect of the decedent and should not be included in the decedent's final return. All interest earned both before and after the decedent's death (except any part reported by the estate on its income tax return) is income to the person who acquires the bonds. If that person uses the cash method and does not choose to report the interest each year, he or she can postpone reporting it until the year the bonds are cashed or disposed of or the year they mature, whichever is earlier. In the year that person reports the interest, he or she can claim a deduction for any federal estate tax paid on the part of the interest included in the decedent's estate.

--------------------------------------------------------------------------------------------------------------------------


Since the 1099-INT has your wife's name and Social Security number on it, enter the 1099-INT using the "Interest on 1099-INT" interview.  If you intend to report some amount of the interest in the final return of your wife's mother you tick the "need to adjust the taxable amount box" on the next page, and on the page following that enter the amount of interest the final return will be reporting and click the radio button next to "I am a nominee."

Tom Young