What are the tax implications for cashing in E Series bonds received by bequest?

We inherited several E Series Bonds which are maturing at different times. I am trying to figure out how many I want to cash to stay in a particular tax bracket. I know the interest is taxed as ordinary income, but do I get to deduct out the cost my grandfather paid for the original bond on a 1040 (if I even get to do that)? Is there any way to check whether he paid any tax on the bonds or let it all accrue? And if it is the former how do I show that on a 1040? Thanks for the help!!!!

You will not pay tax on the original purchase value. The bank will automatically do the calculation and the 1099-INT will reflect that. Make sure your SSN is on the 1099-INT.

All you really need is to talk to the executor.

Question #1, was the interest through date of death included on the final 1040 return. If they have no idea what you are talking about, they didn't.

Question #2, did granddad declare the interest each year or did he let it accrue. The only way to tell is to actually take a gander at the last few years of tax returns since declaring the income is a manual process (almost nobody does it). You need to have copies of these returns to prove it.

If you can prove that not all of the interest is taxable you would enter it as follows:

Schedule B
other interest
all of the savings bond interest
subtotal of all interest
interest previously reported on final return
(give year of death and SSN)
new interest total.

Keep in mind that in order to cash the bonds you have to work with your bank. My grandmother left me bonds titled grandma or grandchild. She died years ago and I just cashed the last bond when I hit the 30 year mark. All I needed was my ID. (Lots of interest for my tax return this year!)

My mom left me a bond titled her name and POD my name. My bank may or may not choose to cash this for me (legally they don't have to). I may have to mail the bond and the death certificate to one the two federal reserve banks that actually processes savings bonds.