Question

In 2015, Harry and Mary purchased Series EE bonds, and in 2019 redeemed the bonds, receiving $500 of interest and $1,500 of principal. Their income from other sources totaled $30,000. They paid $2,200 in tuition and fees for their dependent daughter. Their daughter is a qualified student at State University. (The proceeds from the Series EE bonds were used to pay the tuition and fees.) (Click the icon to view the exclusion phaseout information.) Read the requirements.

Answer 1

Answer :

a.

Since the proceeds were used to pay qualified college expenses for their dependent daughter and all the other requirements are met, all $500 of interest is excludable.

b.

The exclusion is limited to $300 ($500 interest x $1,200 net tuition and fees / $2,000 principal and interest).

c.

The excess modified AGI is $6,000 ($127,100 other income + $500 interest - $121,600 threshold). The exclusion is reduced by $60 ($300 otherwise available exclusion x $6,000 excess AGI / $30,000). Therefore, the available exclusion is $240 ($300 - $60).