Sam, age 45, saved diligently for his college education by putting part of his pay into U.S.Series EE savings bonds.Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200.He has no other income this year.What amount must Sam include in his gross income?

Question

Quizplus · Accepted Answer

The correct answer is D because the difference between the purchase price ($6,500) and the redemption value ($7,200) is $700. This amount represents the interest earned on the bonds, which is generally taxable income unless the proceeds are used for qualified educational expenses under certain conditions. Since the question does not specify that Sam used the proceeds for his college tuition and fees, the default assumption is that the $700 must be included in his gross income.

Sam, Age 45, Saved Diligently for His College Education by Putting