Submitted By: someone
Answered: September 16, 2014 8:30 am

I inherited HH bonds and want to redeem them now. Will I owe any taxes?

It depends. HH bonds were issued in exchange for E and certain other bonds to enable bondholders to continue deferring the tax on the interest that accrued. The Treasury stopped issuing HH bonds in 2004; outstanding bonds have a 20-year maturity. If the original bondholder’s estate included the accrued interest up until the time of death on the decedent’s final income tax return (something that was optional with the person who filed the final income tax return on behalf of the decedent), then you pay tax only on any interest that accrued after the date of death when you redeem the bonds or they reach their final maturity date. But if the accrued interest wasn’t reported on the decedent’s final income tax return, as the bondholder you are now responsible for paying the tax on the accrued interest.

Tax Glossary

Unrecaptured Section 1250 gain

Long-term gain realized on the sale of depreciable realty attributed to depreciation deductions and subject to a 25% capital gain rate.

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