Comments on: Federal income tax brackets

by: Tom Adams

Mon, 08 Mar 2010 15:26:03 +0000

Jerry - Although this seems like a Savings Bond question because the income came from Savings Bonds, it's actually a tax question - the answer would be the same no matter where the income came from.

Thus you would be much better off asking someone with experience in how estates are taxed than asking me.

However, just going by the tables above, it looks to me like the estate's tax rate is going to be higher than yours as individuals. But again, I'm not an expert in this area and you should consult someone who is.

Tom Adams

by: Jerry

Sat, 06 Mar 2010 03:39:52 +0000

My uncle passed away nearly four years ago, and only my cousin and I are remaining heirs. We were appointed co-administrators of his estate, which has already gone through probate. My question is this: there was a considerable amount of savings bonds in the estate, mostly E and EE, that resulted in a considerable amount of interest, obviously.

My question is this: given that the estate is still open until the end of the month, and the redeemed bonds have since been cashed (half in 2009 and half thus far in 2010) and dispersed equally among my cousin and myself, does the interest that was earned get reported by my uncle's estate or by my cousin and myself on our own respective returns.

I've been told different conflicting stories that the tax rate for redeemed bonds is much lower if it's applied to the return of the estate, rather than to the returns of the heirs that are the beneficiaries.

Someone told me that because the estate had no other income other than the bond interest, and that there were expenses associated with the eventual disbursement and closing of the estate (including lawyer fees), that the interest on the savings bonds will be taxed at 11 percent rather than the 25 or 28 percent bracket my cousin and I find ourselves in.

Someone else told my cousin that the estate will be taxed up to 35 percent on the savings bond interest, even though there was no other income.

Also, the 1099 interest form was sent to the estate.

Lastly, since we only cashed half the bonds in 2009, with the remainder this year, will the estate then have to be kept open until next year to pay the interest on the bonds cashed in 2010?

Can you please advise, Tom? We are desperate for the right answer. Thank you.

by: Tom Adams

Thu, 18 Feb 2010 16:45:45 +0000

Victoria - It depends on how much interest income she got from the bonds and what her filing status is. The answer is in Table 1-1 on page 9 of IRS Publication 17.

Tom Adams

by: Victoria R

Thu, 18 Feb 2010 05:03:24 +0000

My sister had no income for 2009, but she cashed in some savings bonds to purchase a new car. Does she need to file taxes this year?

Thanks!

by: Tom Adams

Mon, 15 Feb 2010 15:47:53 +0000

Chris - If she adds you as a co-owner of the bonds, there would be no tax implications. If she makes you the owner and removes her own name, then she has to pay the tax on the interest earned up to the day of reregistration.

Sue - This is a tax question, not a Savings Bond question. You should consult a tax advisor for an answer to your question. Whoever told her the interest was tax free gave her bad information. In any case, the tax will be quite low because her income is so low, but if she's already spent the money it could be a problem for her.

Tom Adams

by: sue schulte

Mon, 15 Feb 2010 05:16:38 +0000

My mother who is in her mid 80's cashed in 2 EE Savings bonds in 2009 and received $8,000. She was told they were tax free. She hasn't filed taxes for the last 5 years because her income is too low. Does she need to file a federal tax return for 2009 because of these cashed out bonds which were purchased in the 70's? Her total income is around $13K from interest, dividends, etc.