Michelle Stone is a student at State University. In 2005, her parents purchased
ID: 2357394 • Letter: M
Question
Michelle Stone is a student at State University. In 2005, her parents purchased Series EE bonds. In 2011 her parents redeemed the bonds, receiving $700 of interest and $3,300 of principal. Mr. and Mrs. Stone have income from other sources of $60,000. During 2011 Mr. and Mrs. Stone paid $4,200 in tuition and fees for Michelle.
a. How much of the Series EE bond interest received during 2010 is excludable?
b. If Michelle received a $1,200 scholarship during 2011, how much of the bond interest is excludable?
Note: Her parents' payments are reduced by the scholarship amount.
c. If Michelle did not receive a scholarship but the parent's 2011 income from other sources is $123,950, how much of the interest is excludable?
Explanation / Answer
a. Amount paid in tuition and fees = $4,200. Amount of bonds redeemed: $4,000. So all of the interest is excluded in this case. b. Amount paid in tuition and feeds = $3,000. Amount of bonds redeemed: $4,000. Since proceeds from bonds is greater than amount paid for education, divide qualified educational expenses by the gross proceeds of the bond redemption: 3,000/4,000 = 0.75. Then multiply by the amount of interest to obtain the exclusion amount: 700*.75 = $525 excluded c. Since their income is in the phase out range (which is 105,100 to 135,100 for MFJ), you first take their income and subtract 105,100, then divide by 30,000, round to three decimals and multiply by the interest and then subtract that amount from the interest to find the amount excluded: (123,950 – 105,100)/30,000 = 0.628 0.628* 700 = 439.60, rounded it’s 440. 700 – 440 = $260 is excluded.