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Series EE Bond Interest. In 2012, Harry and Mary purchased Series EE bonds, and in 2016...

Series EE Bond Interest. In 2012, Harry and Mary purchased Series EE bonds, and in 2016 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. a. How much of the Series EE bond interest is excludable? b. Assuming that the daughter received a $1,000 scholarship, how much of the interest is excludable? Ignore any tax credits that might be available. c. Assuming the daughter received the $1,000 scholarship and that the parents’ income from other sources is $121,800, how much of the interest is excludable?

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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 ($121,800 other income + $500 interest - $116,300 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)

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