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?
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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.
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