I recently discovered series HH bonds that I inherited (1000 face, 800 deferred interest). I inherited them in 2005. They matured in 2010. If I cash them this year, for which year is the IRS tax due? 2010 or 2018? Also for the 1099, will it say 2010 on it or the current year in which it was cashed? If it is 2008, am I stuck with huge penalties for failure to declare/pay?
Poster please see local professional assistance in this matter.
Tax is paid in the year you redeem the bonds. The bank will issue a 1099 for the year you redeem the bonds. You pay taxes on the interest in the year you cash out the bonds.
This answer is incorrect because a bank does not handle HH, instead one must submit the treasury to redeem. see: <a rel="nofollow" target="_blank" href="https://www.treasurydirect.gov/indiv/research/indepth/hhbonds/res_hhbonds_hhredeem.htm">https://www.treasurydirect.gov/indiv/research/indepth/hhbonds/res_hhbonds_hhredeem.htm</a>
The entity that is redeeming the bonds will do the same thing a bank will do ... it is semantics.
From your link ...
Will I get a form for my taxes?
Yes. We will mail an IRS 1099-INT by January 31 of the year following the year in which we paid interest. Tax Considerations for HH or H bonds.
Apparently they mail the deceased because that is the holder of record. So the question remains on how to handle the taxes.
It is way too late to have the decedent's estate redeem the bonds ... they should be paid in your name ... seek local assistance ...
How do I redeem my HH or H bonds?
Your local bank or other financial institution cannot redeem HH or H bonds.
However, the bank can help you by
certifying or guaranteeing your signature on FS Form 1522 (download or order)
sending the bonds, FS Form 1522, and any supporting documents (if needed), to Treasury Retail Securities Site, P.O. Box 214, Minneapolis, MN 55480-0214.
We pay your HH or H bonds through direct deposit.
If you are not listed as the owner or co-owner on the bond, you must show that you are entitled to redeem the bond.
crotter#2 I would really like to get someone else's opinion here. You seem just to be cutting and pasting the treasury retail site without having first hand knowledge or experience with the issue.
<a rel="nofollow" target="_blank" href="https://www.treasurydirect.gov/indiv/research/indepth/hhbonds/res_hhbonds_hhredeem.htm">https://www.treasurydirect.gov/indiv/research/indepth/hhbonds/res_hhbonds_hhredeem.htm</a>
<a rel="nofollow" target="_blank" href="https://www.treasurydirect.gov/indiv/research/indepth/hhbonds/res_hhbonds_hhtaxconsider.htm">https://www.treasurydirect.gov/indiv/research/indepth/hhbonds/res_hhbonds_hhtaxconsider.htm</a>
Well I was taught to read the regulations so that is why I keep telling you to read the link you posted. I still highly recommend you seek professional local guidance as others have also mentioned. You do not understand "income in respect of a decedent" either since neither the decedent or the estate will be filing a return for this bond income.
But let's see if anyone else would like to weigh in ... @dmertz @Carl @TaxGuyBill @Opus 17 ???
Sweetie you too , I would like to get someone else's opinion. Critter2# you are incorrect. Sometimes the decedent will declare the deferred interest income on their on their final income tax filing. In this case, that did not occur. As the person who inherits the savings bond, I pay taxes on the deferred interest income. Since the bond was also valued at face value as part of the estate it was taxed there. The face value included deferred income since it was converted from a series EE bond. I am entitled to a tax credit from the IRS which is related to "income with respect to decedent" to avoid double taxation on the deferred interest income. By the way, no where does this question ask about income with respect to decedent, that was a completely different question.
According to IRS Pub 550, Series HH bonds pay interest to the owner every 6 months until maturity. If the bonds reached maturity in 2010, the owner should have already reported all of the interest earned by the Series HH bond. This leaves the deferred interest to deal with. Redeeming the Series HH bonds after maturity should only result in the deferred interest being taxable income. The deferred interest is taxable income to the recipient (beneficiary in this case) in the year that the Series HH bond is redeemed and will be reported on a Form 1099-INT issued to that recipient. This should mean that if the bond is redeemed while still part of the deceased's estate, it will be income to the estate and, since the deferred interest is more than $600, it will be reportable on the estate's income tax return Form 1041 and probably the income will be passed through to the estate beneficiary(s) on Schedule(s) K-1. If the bond itself is distributed to an estate beneficiary and the estate beneficiary redeems the bond (or the bond had your name listed as an owner), the estate beneficiary (or you as a named owner) will be the one receiving the Form 1099-INT and reporting it on their (your) individual tax return.
Basically, if the U.S. Savings Bonds are not made out to you, then you will need a court order in order to cash them in. As a beneficiary recipient of the bonds, this order will typically come from the probate court. Since your name is not on the bonds, you can't cash them unless you can prove you have the legal right to do so. When you do cash them, you will be required to provide your SSN and a valid mailing address to the banking institution that cashes them, because the proceeds will be taxable income to you. At a minimum, at tax time you will receive a 1099-INT (not a 1099-MISC) to report the interest on the bonds.
Typically, Series EE savings bonds are purchased at 1/2 of their face value. So if you cash in a fully matured $100 savings bond, then you will be taxed on $50 of that bond. There are some bonds that can an do earn beyond their face value. But the point is, the amount paid above the initial purchase price of the bond, is reportable/taxable income in the year the bond is cashed out.
I'm aware of that. All I can use in my example, is that which I know, and I know how it works with EE bonds because I've dealt with it before in a similar situation.