Question

In February of the current year, Paul and Jean, a married couple, cashed a qualified Series EE savings bond they bought in November 2008. They received proceeds of $7,132, representing principal of $5,000 and interest of $2,132. In the current year, they helped pay their daughter’s college tuition. The qualified education expenses they paid in the current year totaled $4,000. They are not claiming an education credit for the expenses, and they do not have an education IRA. How much interest income can Paul and Jean exclude?

Answer 1

Step-by-step explanation:

Calculation of amount of interest income Paul and Jean can exclude =
`I (E)/(P+I)`

where I = interest received, E = educational expenses, P = principle.

Proceeds received $7,132

Principle $5,000

Interest $2,132

Qualified Higher Educational expenses $4,000

=2132*(4000/(5000+2132))= $1,195.74

Answer is 1,195.74 exclusion