I acquired US EE savings bonds from a decedent's estate. Am I allowed an allowable step up in cost basis for these bonds? I have the bonds valuation at the time of death.

[ScruffyCurmudgeon]

Unless the original owner has previously reported as income some of the interest payable prior to time of death, you will be liable for taxation on the entire amount of accumulated interest.

To further explain, the bonds value is a combination of the original purchase price plus the accumulated and to-date foregone interest.  The owner has the option to year-by-year report the interest accumulated but most people wait until either maturity or when they liquidate the bond, at which time the total accumulated interest is liable to taxation.

An exception to your liability may exist if the Personal Representative of the Decedent did have the Estate declare the accumulated interest as income and pay from the Estate the tax obligation - it is unlikely, however.

[RichardG]

Unlike most other assets, savings bonds do not get a basis step up at death, because they are "income in respect of a decendent."  All income the decedent would have received had death not occurred that was not properly includible on the final return,  is income in respect of a decedent

In most cases the deceased owner of the bond fails to include the bond's accumulated interest on his or her tax return each year.  The accumulated interest in therefore reported on the transferee's tax return when the bond is redeemed.

But if the owner reported the interest each year, the increase in value of the bonds (interest earned) in the year of death up to the date of death must be reported on the decedent's final return. The transferee (estate or beneficiary) reports on its return only the interest earned after the date of death.

This is a particularly complex point of tax law.  You may want to read this blog entry for a more detailed explanation: http://blog.myirstaxrelief.com/2010/02/ird-income-in-respect-of-a-dec.html