accrued interest

[sabkosl13]

I am doing a final tax return. Taxpayer received form 1099-INT, it looks like on the picture.

How to report this interest?

[jeffmcpa2010]

Questions

What kind of taxpayer?

Taxpayer is a cash basis taxpayer?

[sjrcpa]

Deceased?

[sabkosl13]

Yes, deceased person. He has only two 1099-R forms, one 1099-Int with a regular interest (box 1) and this 1099 with accrued interest.

[jeffmcpa2010]

Person's (Decedent's) are most always cash basis taxpayers.

Likely the "Accrued Interest" will be taxed to the Estate, Or Beneficiary(ies) whoever is holding the account at the time the accrued interest actually gets paid.

Interest paid would be included on the decedent's final return.

[sabkosl13]

Form is for the deceased person name and SSN.

[sabkosl13]

So I have to enter total amount $120,500 in the box 3 and nothing more?

[jeffmcpa2010]

I would probably want to find out more information about the $120,000.

However I don't think that is taxable to the decedents final 1040 personal tax return, as almost all persons are cash basis taxpayers and do not report income until it is received.

The Accrued Interest would be taxed when some future entity (Estate of Beneficiary) actually receives it in my experience

[George4Tacks]

Is there a 1099B showing this item sold? That accrued interest is likely accounted for in the detail for that sale. 

When all else fails - READ THE INSTRUCTIONS (in this case they should be on the back of your image)

Box 3. Shows interest on U.S. Savings Bonds, Treasury bills, Treasury bonds,
and Treasury notes. This may or may not all be taxable. See Pub. 550. This
interest is exempt from state and local income taxes. This interest is not
included in box 1. See the instructions above for a taxable covered security
acquired at a premium.

[jeffmcpa2010]

Good catch George - I was too zoned in on the paid vs accrued portion of the question.

[George4Tacks]

It is amazing how much you learn after doing returns for 50 years, and yet I get puzzled almost daily with new variations on the theme. 

[sabkosl13]

No another form connected with this interest. Only this 1099-INT.

I read the instructions and still not sure that I have to do correctly. 

If I don't have other info, should I enter total amount in box 3 without any adjustment?

[George4Tacks]

This sounds like someone bought bonds a long time ago. They got cashed in at death and there were 40 years worth of built up interest now taxable when they were cashed in. Looks like that big number is US Bond interest reportable on that tax return. 

[BobKamman · Accepted solution]

When all else fails, ask the client what happened.  Did the taxpayer cash those bonds when he signed up for hospice, then died six months later?  Or did the survivors cash them, perhaps not telling the bank or Treasury that the owner had died?  In either case, it can still be reported on the decedent's final return, which will result in a lot of tax being owed but probably less than if the beneficiaries report it.  

[sabkosl13]

Thank you for everyone for the answers. Son, who is an executor, has no more information. So I will do as I thought and as you advise - I will report everything on the final return without any adjustments. 

Thanks again.