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I inherited series EE savings bonds, my name is in the POD (payable on death).

What taxes am I obligated to pay? I know normally on bond you are taxed on the interest gained. But do I have to pay anything else?

Also can I will these bonds if I don't cash right away, or do I need to do some weird process to change the POD?

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According to this:

Here's how savings-bond taxation works. Interest on EE Bonds and I Bonds gets added to their initial value until the bonds are redeemed. The difference between the purchase price of the bond and the redemption value of the bond is subject to federal income tax; it is exempt from state and local income tax. Savings-bond holders have a choice about when to pay that tax. One option is to "accrue" it annually, in which case you report the interest and pay tax on it each year. The other is to postpone the tax until the year in which you redeem the bond. (This subject is covered at greater length in IRS Publication 550, "Investment Income and Expenses.")

Most people choose to defer, or delay, the tax. If so, when they die holding savings bonds, there is what's called "income in respect of a decedent," or IRD: income that wasn't taxed before a person's death and would have been taxed if the individual had lived long enough to receive it.

As a result, when inheritors redeem inherited bonds on which the tax has been deferred, they will owe tax on all the interest that has accumulated. If you choose to have the bonds reissued, you have the option of paying tax on whatever interest has accumulated up until the original bondholder's date of death, and then either accruing or deferring any subsequent tax. If you make this decision before the estate is closed, there are a couple of money-savvy ways to have the tax on the IRD paid directly by the estate, rather than coming out of your own pocket.

Report the income to the decedent: This approach makes sense if the decedent was in a lower tax bracket than the bond inheritor, as might be the case when someone dies early in the year or doesn't earn much during the year of death, says Bruce Steiner, a lawyer with Kleinberg, Kaplan, Wolff & Cohen in New York. Or perhaps the decedent had high medical expenses (for example, nursing-home bills) that can be deducted against the income from the bonds. To implement this strategy, you will need the cooperation of the executor (also called the personal representative in some states) or whomever is administering the estate. This person is responsible for filing the decedent's final income tax return, which is due on April 15 of the year after he or she died.

Report the income to the estate: This tends to be a less-attractive option in many cases because an estate hits the highest income tax bracket once it has more than $12,301 of taxable income. (In contrast, a single individual doesn't hit this bracket until her taxable income is more than $413,200.) But to be certain, have tax advisors run the numbers. Often, estate administration expenses can be deducted on the estate's income tax return--assuming the estate is not large enough to be subject to estate tax--and could help offset the income from the bonds, Steiner says.

Note that when an estate is subject to federal estate tax, whoever pays the income tax on the inherited bonds is entitled to an income tax deduction for the portion of the estate tax attributable to the interest on the inherited bonds, Picker says. This could be the estate or an individual beneficiary. They can take this deduction regardless of whether or not, under the will, they are personally responsible for paying the estate tax. If the interest is reported on the decedent's final income tax return, so that it is paid by the estate, that income tax reduces the federal estate tax liability.

Finally, if you choose to have the bonds reissued and then defer future tax, be sure to keep good records of what's already been paid. Otherwise, many years from now when the bond matures or is redeemed, you--or your heirs--could get stuck paying double tax.

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