Sam, age 45, saved diligently for his college education by putting part of his pay into U.S. Series EE saving 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

Sam must include the interest earned on the bonds in his gross income, which is calculated as the difference between the redemption value ($7,200) and the purchase price ($6,500), which is $700. However, if Sam uses the proceeds to pay for his college tuition and fees, he may be able to exclude the bond interest from his income through the education savings bond program. This exclusion applies if the bond owner pays qualified higher education expenses in the same year that the bonds are redeemed and certain income limitations are not exceeded.

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