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Cutting Taxes on Savings Bonds

To cut taxes on savings bonds, make them a bequest, not a gift

Q. My mother is giving us U.S. savings bonds that she owns. Will I have to pay taxes on them?

A. To transfer ownership of the bonds to you, your mom will essentially have to redeem them and get them reissued in your name. She'll have to pay income tax on the accumulated interest she earned while holding them. When you subsequently redeem them, you will owe taxes only on the interest that accumulated while you owned the bonds.

From a tax viewpoint, it might be better all around if your mom held on to these securities until her death and bequeathed them to you. She would pay no taxes on interest while still living and you'd inherit the bonds at their current value. All of the gains and interest received until that point would simply be considered part of her estate, meaning you might well end up paying no taxes on them. But estate taxes are complex; it's best to consult a tax adviser about the specifics of your situation.

Linda Stern writes on the economy and taxes.

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