Inherited savings bonds: ownership, cashing and tax
When a savings bond owner dies, the bond goes to a surviving co-owner or beneficiary, or else to the estate. The tax on interest earned before death falls on the final return or on the heir, as the calculator shows.
Interest you report when you cash it
$500.00
Nobody reported the interest earned before death: you report all of it, as income in respect of a decedent.
| Interest before death | $200.00 |
| Interest after death | $300.00 |
| On the owner’s final return | $0.00 |
If estate tax was paid on the bond, the heir may deduct the estate tax on that interest (Publication 550, income in respect of a decedent).
Worked out by Radif Partners · How we calculate · rates read on treasurydirect.gov and fiscaldata.treasury.gov · not personal financial advice
An inherited savings bond follows the names on it. If a co-owner or a beneficiary survives, the bond is theirs directly and does not pass through the estate. If the only person named has died, or both co-owners, the bond belongs to the estate of the last to die, and is distributed under the will or state law; when the Treasury securities in an estate are worth more than $100,000 at the date of death, a court must administer it. For tax, the interest earned before death can go on the owner's final federal return, at the choice of the executor or surviving spouse; if it does not, the heir reports it together with the interest earned after death, when the bond is cashed. In the IRS example, a bond bought for $500 is worth $700 at death and cashed at $1,000: the heir reports $500, or only $300 if $200 went on the final return. Either way the interest is exempt from state income tax.
Who owns the bond after a death
TreasuryDirect sets out three situations for paper bonds (TreasuryDirect, death of a savings bond owner). With one person named, the bond belongs to that person's estate. With two co-owners, the survivor becomes owner as if they had been the only owner from the issue date; if both have died, the bond goes to the estate of the one who died last. With a beneficiary named, the bond goes directly to the beneficiary and stays out of the estate. For electronic bonds, the Treasury asks the family to contact it: it puts a hold on the deceased's TreasuryDirect account and says what to send.
An estate holding savings bonds and other Treasury securities worth more than $100,000 in redemption value at the date of death must be administered by a court, and the court-appointed representative deals with the bonds. Below that amount, an estate not settled through a court or under a state small-estate procedure follows the Treasury's procedure for non-administered estates.
The value on the date of death
The tax split needs the bond's value at death, which is the redemption value of that month. Take a $1,000 paper EE bond issued in June 2001, bought for $500.00. Had its owner died in October 2024, its value then was $1,134.80; cashed on the first of October 2026, it pays $1,218.80. Interest before death is $634.80, after death $84.00. The bond stops earning in June 2031.
Value of the bond on the date of death
What your bond is worth
$2,243.60
| Price paid | $1,000.00 |
| Interest earned | $1,243.60 |
| Rate in this period | 3.01 % |
| Penalty | none after 5 years |
Who reports the interest
Publication 550 distinguishes two cases (IRS Publication 550). If the owner reported the interest each year, the interest of the year of death up to the date of death goes on the final return, and the heir reports only what is earned afterwards. If the owner deferred, which is the usual case, the executor or surviving spouse who files the final return may include on it all the interest earned before death; the heir then reports only the later interest. If they do not, the interest earned before death is income in respect of a decedent: it stays off the final return, and the heir reports all of it, before and after death, when the bond is cashed or reaches final maturity.
The publication's example is a $1,000 EE bond bought for $500, worth $700 at the owner's death, cashed by the heir at $1,000. Without the election, the heir reports $500; with it, $300, and $200 is on the final return. An heir who already reports savings bond interest every year includes the $200 in the year the bond is acquired.
Which choice costs less
The election moves tax from the heir to the deceased's final return, so the answer depends on the two tax rates. Putting the interest on the final return helps when the deceased was in a lower bracket than the heir, for example in a year with only part of a year's income. Leaving it to the heir helps when the heir is in a lower bracket or will cash the bonds over several years. For the $1,000 bond above cashed now, a single heir with $70,000 of other taxable income would owe $158 of federal tax on the whole $718.80 of interest. The calculator splits any bond's interest between the two returns.
Estate tax and the deduction
A savings bond is part of the deceased's estate for federal estate tax and for any state estate or inheritance tax (TreasuryDirect, tax information); the exemption from state tax covers income tax only. When federal estate tax was paid on the value of a bond, the heir who reports the interest earned before death can deduct the part of that estate tax attributable to it, as an itemized deduction, under the rules for income in respect of a decedent. Most estates owe no federal estate tax, and then there is nothing to deduct.
Practical steps
Find every bond first: paper bonds may be among the deceased's papers, and electronic ones are in a TreasuryDirect account. Check whether each one is still earning; a bond past 30 years has a fixed value and its interest was taxable for the year it matured. A named co-owner or beneficiary can usually cash the bond or have it reissued. Heirs who keep the bonds take over the same issue dates, so the 12-month lock and the three-month penalty before five years run from the original issue date. The cashing page explains the forms and the tax page the reporting methods.