Who pays the taxes

I recently divorced and received a 1099 showing I have to pay taxes on $8,000 of interest on some bonds that transferred ownership as part of the marital settlement. I was wondering if I need to pay interest on bonds that had my ex-husbands name on the bond and an or listing my name after underneath. Which to me says we owned them jointly? Who should be paying the interest on these bonds? Can I delay paying the interest charge? P

Nancy - Except in community property states, it's possible to transfer ownership of Savings Bonds between spouses as part of a divorce without creating a taxable event.

Either you live in a community property state or the transfer was mishandled. I don't know if it's possible to go back and fix a mishandled transfer.

There's no way to delay adding the interest to your income.

Tom Adams

I recently discovered some savings bonds that were titled in my mothers name (Party A) and my grandmothers name (Party B). I believe my grandmother put up the money to purchase the bonds. The names are separated by the word "or" not "POD". Prior to discoving these bonds, my mother (Party A) passed away. However, my elderly grandmother (Party B) is still living… she's turning 101 in a couple of days! At any rate, I am thinking about removing my mothers name and reissuing (registering) the bonds to show my grandmother as the first owner, and my name (Party C) as the new co-owner. None of the bonds have fully matured. Is this reissue considered a taxable event? if yes, who pays the taxes? I know we have the option of cashing the bonds right now (in my grandmothers name), but I do not want my grandmother to take a large tax hit or have the nursing home assume her remaining assets. For all practial purposes, this is her money, but I would rather cash the bonds under my name and pay the taxes myself.

Please advise the best way to handle this situation.

Jim - The bonds legally belong to your grandmother. She can have the registration changed without tax consequences. There's more info on this kind of change here.

Unfortunately, as the above article points out, if you cash the bonds, the IRS would still say it's your grandmother who owes the taxes, not you.

Since her tax rate is almost certainly lower than yours, it's not clear to me why you want to pay the taxes anyhow.

Unless she needs the money, she also has the option of just not cashing the bonds. If she changes the registration as you've outlined, you would inherit them if she dies first.

If you don't change the registration, your grandmother's will determines who gets the bonds if she dies.

Tom Adams

I am now retired. While working I purchased Series EE bonds as gifts for my grandchildren and registered them in my grandchild's name and mine. I used my Social Security number as I did not have that information for my grandchild. My grandchildren are now coming of age where I am giving them the bonds on their 18th birthday or graduation from high school. How do I now get my grandchildren's SSN on the bonds so that interest earned is not part of my income?

Hi Ken - I assume you're saying that on each bond you are a co-owner with a grandchild.

From a tax perspective, it is a mistake to make yourself a co-owner of a bond meant as a gift. As the text at the top of this page explains, since you put up the money for the bonds, the IRS considers you the principal owner of the bonds, even though your name is listed second. And the IRS wants the principal owner to pay the tax.

On the other hand, as a practical matter, when the bonds are cashed, the 1099-INT reporting the interest to the IRS will have the SSN of the person cashing the bond. The SSN printed on the bond isn't used and there's no way to change it anyhow. The Treasury won't reissue a bond just to change the SSN.

There's a disconnect between how the IRS wants Savings Bonds interest handled in terms of principal owners and how the Treasury tells banks to make out the 1099s.

Tom Adams

Tom, my parents want to give me a 'E' savings bond issued in 1977 (now matured).  They want to avoid any tax implications.  The purchaser of the bond was my grandmother (maternal) who has been deceased for 2 years.  The Bond has the name in the To: section as my grandmother along with her old address/city/state/zip. Underneath the address it states Or and my mothers name.  Is there anyway that my parents/mother can give me the bond in order that they/she avoid any tax implication?  If so how?Thank you

Hi Jerry - In short, no. Your mom has to pay the taxes. Since her tax rate is probably lower than yours anyhow, why not? But if it's higher, it's higher.

She will be tempted to hold on to it rather than tax it. This just compounds the problem, as now she's giving an interest-free loan to the government and the taxes still have to paid.

Tom Adams

I have a real quandry! Just got a phone call from a person who bought my grandparent's house who found Series E Bonds in the basement. Sure enough, there were 9 bonds with a total face value of $2600. My grandfather had bought them for my mother and didn't want his wife to know about them. They have "my mother's name" or "my grandfather's Name" on each of them. My grandfather died in 1981. My Grandmother died in 2004. And my mother died in 1995.

I'm my mother's sole survivor and was trustee of her living trust, which was liquidated and ended in 1996, with the help of an attorney. All federal taxes were filed for her year of death and for the trust. I'm sure that no taxes were paid on the bond interest.

What do I do about taxes and the IRS Penalty. The final maturity dates range from 1996 to 2005, with all but two having the 40 year maximum. The two bought in 1966 and 1957 had 30 year maturities. The interest for the 9 totals $16,379.12. Obviously, I learned that the bonds are well past their maturity dates. In spite of this, will the IRS still penalize me? Or can I file an estate form in my mother's name? It's value was well below any taxable estate amount.

Or will I have to pay the full tax plus penalty since my name and SS# will be on the W-9 filed through the bank?

Thanks so much for any advice you can give me.

Hi Dave - since the bonds aren't legally yours, it would be hard for the IRS to argue that you should have paid the taxes in earlier years. I don't see much chance of a penalty here.

Demonstrating to the Treasury that you're the legal heir could be the bigger problem, particularly on the bonds that have only your grandfather's name on them.

I suggest you use the links on this page to contact the Treasury and ask them how to proceed.

Tom Adams

my mother and father had a hand full of savings bonds my mother name was on some and fathers name were on some mother died in 1989 my father passed away in 1997 bonds were in his house in a box still in his house at the time of his death my father remarried 2 years after mother passed away in 1989 they are gone and have never been found the lady that he married took these bonds how would she have cashed these bonds if my mother and fathers name were on them? nothing in the will says that these were hers to take i have no searil numbers but these bonds were bought for me to go to collage on is there any way i can get my hands on them or find out if they have been cashed in
thank you mrs parnell

Tammi Lynn - since the bonds belonged to your father and he remarried, his wife would have a stronger claim to the bonds than his child would. Sorry, but that's how the law handles situations such as yours.

Tom Adams

I have a quick question….my parents bought my boys bonds with their names on them and my name as co owner…if I cash them will I pay the taxes on that? since my parents names were only on their to show where to mail it too….their names and social security numbers were not on there….

My husband at the time and I purchased series EE savings bonds by payroll deduction from my pay check. They are in my name "or" my former husband's name. In the divorce decree the bonds are listed as belonging to 'the child'. Based on what I've read here on this site, I'm thinking the answer to my question is that I claim the interest when cashed because they were purchased from my paycheck? Can they be transferred to my son's name? If they would have been in my son's name "or" my name, would the interest have been claimed by him and then offset by what he would be paying on a student loan?

Shannon - the 1099-INT tax form will be issued in the Social Security Number of the person who cashes the bonds - you or your son. Because they gave the bonds to you, your parents aren't responsible for the tax.

Sara - If you had changed the bonds to your son's name at the time of the divorce, you would have had to pay the tax at that time and he would pay the tax since then. If you change the name now, you pay all the tax, just as if you cashed them now. Since cashing is a lot easier than changing the name, I suggest you just do that.

Tom Adams

I and my wife buy EE savings bonds for our boys every so often. We plan on giving them these bonds when they complete high school. They have to use these bonds for educational purposes, tuition, books etc. Will I or him have to pay taxes on these bonds if we use them solely for educational expenses? Their name is on the Bonds and my name as the father is listed as a co-owner.

Also, since they will have a lower income as a student, will their tax bracket rate be less than mine?

Hi Terry - because of the way you've registered the bonds, these bonds aren't eligible for the Savings Bond college education tax deduction.

The 1099-INT will be issued in the SSN of whoever cashes the bonds (boy or father). Typically students are in a lower income tax bracket than their parents and would pay less (sometimes even nothing) in taxes.

Tom Adams

Mr. Adams,

How should a person register savings bonds in a way that the bonds can be eligible for the Savings Bond tax deduction?

Thank you for youe advise.

Terry - there are handful of rules about how the bonds have to be registered; they are described on my Savings Bond college education tax deduction page. If you need more information, please ask on that page, not here.

Tom Adams

Hello , My wife and I have EE bonds wherby we are alternately owner and co owners on all of the bonds. We would like to insure that our grown children can inherit, without probate, whatever bonds are left when we pass on. What do you suggest ? Also, isn't there an IRS ruling that any EE bond value over $100,000 MUST be run through the probate process ? Thank you.

Ralph - the main page on this site regarding this issue is here.

You'd probably also be interested in the page about estate planning.

Yes, if the redemption value is over $100,000 the bonds must go through probate. Also, whether the bonds go through probate or not, your heirs may owe estate taxes. Usually on the federal level this isn't a problem, but depending on what state you live in, there can be a significant level of state estate taxes.

Tom Adams

Hi Tom,

I was divorced in 1986 & part of the divorce settlement was 35 EE savings bonds. They are in my ex-husband's name with me listed under "POD".

Is there anyway he can transfer those bonds to me? He is willing to do so. He is also willing to cash them in, give me the money & I will pay the income tax but his income is higher than mine plus I don't know if it is wise to cash them all in at this time.
Thank you for any help you can give me.

Nora Bryant

Nora - Savings Bonds can be transfered tax free between ex-spouses when their transfer is part of a divorce settlement. This post on splitting Savings Bonds after a divorce has more information than you probably need - concentrate on the last couple of paragraphs.

Tom Adams

My parents bought savings bonds in our names when we were kids. Now many years later, they've been divorced for about 20 years. These bonds "disappeared" for awhile, and were found a few years back. Neither mom or dad will give any info about the bonds, even thou they were bought for myself and my 3 brothers with college in mind.

My question is, do we as siblings have any right to these bonds? And where would we inquire of such?

Joe - legally you have rights but as a practical matter you'd be better off being patient. If you just can't, speak to a lawyer.

Tom Adams

Can I purchase a EE savings bond and put the owner as a 1yr.old child, or do I have to put the child's parent as co-owner?

Tina - You can use the child's name - there's more info here.

Tom Adams

My mother-in-law was recently placed in an assisted living facility. While going through some of her papers we found a old us bond that was issued in 1958. The problem is that it was given to my father-in-law as a payment years ago for some work he had done for this man. The bond has the man's name and was not signed over to my father-in-law. My mother-in-law tried to find out who the bond belong to, but without a social security number she was not able to find the owner. We wanted to know if you could explain how my mother-in-law could cash in this bond, or even if she would be able to do so. It was given for work done, but as you know back in the time it was a different world. My father-in-law being a trusting person never figured he wouldn't be able to cash this bond in. Any help on this matter would be greatly apprecitated.

Hi Barbara - you family can't cash the bond. The only thing you can do is turn the bond over to the lost property division of your state's attorney general office. They may find the heirs of the owner, but those heirs will get the money, not your family.

Tom Adams

We have savings bonds in the name of my mother and our kids. Bonds are titled as "or". Bonds were purchased and paid for by my mother. It appears that based on what I read my mother pays the taxes no matter who actually cashes the bonds. Does my mother's death affect who pays the taxes or is the interest just included in her final tax return.
Thanks

Bill - if your mother has died, then the bonds are sole-owner bonds belonging to your kids and your mother is no longer responsible for the taxes.

However, it is technically possible to put the interest through the date of your mother's death on her final return. If the bonds are valuable enough and your mother's tax rate was low enough to make this worth considering, my book has the details on how to accomplish this.

Tom Adams

We have found paper EE savings bonds that my grandmother (deceased for 7 yrs) purchased for my son as gifts when he was young to later help pay for college. He is now 18 and going to college. The majority of these have my son's name listed first and then "OR" my name.
1)Since we are co-owner, who lists them as an asset on financial forms?
2)Is the asset value the face value of the paper bond? or what is the value we should list?
3)When they are cashed who is responsible for taxes since neither of us purchased them?

Sue - Your first question is a FAFSA question, not a Savings Bond question, and I don't know the answer. You'll have to ask a FAFSA expert.

You can determine the value of the bonds using the Savings Bond Calculator you'll find at the top of this page, on the right.

The person who cashes the bonds - you or your son - will be responsible for the taxes. Assuming his tax rate is lower than yours, he should cash them. Because of the way they are registered, they're not eligible for the Savings Bond education deduction.

Tom Adams

Tom,
I am the attorney-in-fact for my aunt who is in need of applying for medicaid. She has several bonds with her name and social "or" my son's name. Are these part of her assets when applying for medicaid? She also has given bonds to my niece which are made out the same way. If they are her assets do I have to ask for them back for medicaid purposes. ( This could be tricky) Can I give my son the bonds that my aunt has? Can he wait and cash them in after her death? Thanks

Angie - When anyone applies for Medicaid, the Social Security Administration routinely checks with the Treasury to see if that person owns any Savings Bonds or other Treasury securities. Whether they find any depends on the Social Security Number on the bond.

In your aunt's case, the bonds have your aunt's SSN on them. So your aunt will be expected to cash them, hold back what she needs for taxes (her income may be so low this won't be an issue) and spend what's left on her health needs before Medicaid will kick in.

Tom Adams

Tom,
My mother who is 74 wants to reissue EE saving bonds to me. Her name is on the bond and I am listed as the POD. I believe she would be required to pay taxes on the bonds, but what happens when I cashed them? Also, since she is 74 is there a one time tax break for the interest.

Lynn

Lynn - If your mother has the bond reissued to you, she will receive a 1099-INT reporting the interest earned at the time of the transfer.

When you cash the bonds, you will receive a 1099-INT reporting all the interest the bonds have ever earned - including the portion your mother has already paid tax on. The IRS doesn't expect you to pay the tax a second time, but you do have to show that some of the tax has already been paid. In my book I call this the Double Taxation Trap.

Given that your mother probably has a lower tax rate than you do, I recommend that she cash the bond, pay the taxes at her low rate, and give you what's left of the money after the tax has been paid.

Tom Adams

PS - There's no age-based one-time tax break.

My Grandmother is in an assisted living facility and my mother is the Co-Owner of her Savings Bonds. It was issued to and paid by my grandmother, if my mother signs the bonds who would be responsible to pay taxes on the interest?

Barbara - If your mother cashes the bonds, the 1099-INT will be issued in her SSN. As a practical matter, this means she should add the income to her tax return.

Theoretically, if her tax rate was a lot higher than your grandmother's tax rate, it is possible to put the taxes on your grandmother's return using a nominee distribution (see above).

The IRS says that's what you're supposed to do anyhow, but few people do.

Tom Adams

My Father has some EE savings bonds that have my Mother as benificiary. My Mother passed away and he would like to change the benificiary. Please advise which form needs to be completed in order to do so.

Judy - the info you're looking for is here.

Tom Adams