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

When Sam redeems the bonds, he realizes a gain of $700 ($7,200 - $6,500). This gain is included in his gross income for the year. However, if Sam uses at least some portion of the proceeds to pay for his college tuition and fees, he may be able to exclude a portion of the interest income from his gross income under the education savings bond program. This exclusion is limited to a maximum of $350 in interest income for individuals with modified adjusted gross income (MAGI) of $85,100 or less ($135,100 or less for married taxpayers filing jointly). However, the question does not state whether Sam qualifies for this exclusion, so answer choice D is still the most accurate answer.

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