If a U.S. savings bond is issued at a discount and the surviving co-owner or beneficiary redeems such bond, the person shall report the entire appreciation in value occurring before and after the cash-basis decedent’s death to the extent not includible in income of the deceased. The increment occurring in the value up to the decedent’s death is deemed to be income accrued after the death. Where a beneficiary receives Series EE or Series I U.S. savings bonds from an estate in satisfaction of a specific dollar amount legacy, and the decedent was a cash-basis taxpayer who didn’t elect to report interest each year, the beneficiary only has to report as income the interest earned after he receives the bonds. In such a case, the increase in value to the date of distribution is considered as income to the estate.
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