Dear Harry: I inherited a number of E savings bonds in 2002. At that time, the inheritance tax was paid on their value. I am considering redeeming some of the bonds, and I have a question on the income taxes due. Will I be required to pay the income taxes on the interest earned from 2002 to now, or will I get hit for the taxes on the interest all the way back to the original issue date? Wouldn't it be double taxation to go all the way back to the issue date?

What Harry says: You mentioned that the inheritance tax was paid on the bonds, but you did not indicate whether the interest earned to the date of death was reported on the decedent's last income tax return. If the interest was reported on the decedent's final income tax return, then you have to report only the interest earned since then. Otherwise, you will be taxed on all the interest from the issue date. The inheritance tax does not create a situation of double taxation. It is levied on the total value of the decedent's assets, not on the income earned on the bonds.

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