I’m retired and have some paper EE and I savings bonds I want to sell. The bonds are held in my husband's and my Trust, have not matured yet, and my spouse died on 1/9/25. One financial advisor said I should get a step-up in cost basis based on the date my husband died, and that step-up would reduce my taxes. Another financial advisor said there wouldn’t be a step-up in cost basis. Which advisor is correct?
If there is a step-up in cost basis, how would I determine what it is? Would I use the TreasuryDirect Savings Bond Calculator site to calculate the value of the bonds on the day my husband died to determine what the step-up in cost basis would be? If so, where would I enter that info in TurboTax desktop when I do my taxes next spring?
If it was a joint account, you would get a partial step-up in basis. The step up in basis would be for one-half of the original basis. (See Joint interest.) Next year when you file your taxes, you would be able to do an adjustment for the basis. (You would look up the TreasuryDirect calculator and add one half of the value on date of death to your basis.) Sorry for your loss.
Thank you. My husband and I were living in AZ (a community property state) when he died, but I have since moved to CO (which is not a community property state). Does that have any bearing on whether I get a partial or a full step-up in cost basis? I know for selling a house in AZ after the death of a spouse, I’ll get a full step-up; so would I also get a full step-up for the bonds?
Based on the first answer to my question, I would get a step-up in basis. So once again, I am getting contradictory answers, just as I did from two financial advisors. Can you point me to an IRS web page that might settle this?
You are entitled to a step-up in basis for assets to which step-up in basis applies, even for assets held within the trust. However, the issue here is that savings bonds do not get a step-up in basis.
The advisor that told you that you are entitled to a step-up in basis either didn't realize that it was savings bonds that were held in the trust or didn't know this rule.
The sale of your home and most other assets will be "stepped up" to the value of the assets on the date of death (unless an "alternate valuation date" is set, but this is not very common).
There is more information about what happens when a savings bond owner dies HERE.
See IRS Pub 550 regarding this situation (the result of which is that there is no step-up in basis on savings bonds): https://www.irs.gov/publications/p550#en_US_2024_publink10009922
Essentially, the basis is the original purchase price plus the amount of interest on which taxes have already been paid. Any amount beyond that is deferred income which will eventually be taxable income.