Final tax return for deceased - election to include accrued bond interest

[Gretel]

Is the election to include the accrued bond interest up to DOD made by just doing it?

[Burke]

I went through all the Elections pages in my software, and could not find one specifically referring to that one. But it does have a Blank Elections page, on which you can put that and just specify the IRC Title section number it refers to. So you put it on Schedule B and attach the Election statement.

[Roland Slugg]

With the exception of Series EE or Series I U.S. Savings bonds, there is no election that allows accrued bond interest to be reported on a cash-basis decedent's final tax return. Interest received after a person dies is reported on the return of the person or entity that receives it ... i.e. the individual, estate or trust.

The only election regarding the reporting of accrued interest by a cash basis taxpayer is in regards to certain U.S. Savings Bonds, specifically Series EE or Series I. IRS Pub 559 says this about it:

The person (executor, administrator, etc.) who is required to file the decedent's final income tax return can elect to include all of the interest earned on the bonds before the decedent's death on the return. The transferee (estate or beneficiary) then includes only the interest earned after the date of death on its return.

The Pub does not specify how the election is to be made, so I would just follow Burke's suggestion and attach a simple statement saying the election to report the accrued interest is being made, along with the amount. Note that this exception applies ONLY to certain types of U.S. Savings Bonds. It does NOT apply to corporate bonds or to other U.S. Treasury issues.

It would be helpful to advise the beneficiary(ies) that this election was made, so the same interest is not reported again.

[Burke]

Note this option is particularly worthwhile if the deceased had no tax liabilities in the final year, often as a result of large medical expenses (especially nursing homes, for example.) I had one this year where the interest (US Savings Bonds) was nearly $33K, and was wiped out by the medical expenses deducted.

[Gretel]

Agreed

Yes, it's EE bonds only, interest to the tune of $100,000 - taxpayer died early in the year, almost no income. Thanks for the advise on how to make this election on the tax return.