Question

Starting in 2002, Sergio and Jasmine have been purchasing Series EE bonds in their name to use for the higher education of their son, Devon, who currently is age 20. In 2018, they cash in $24,000 of the bonds to use for tuition, fees, and room and board. Of this amount, $10,000 represents interest. Of the $24,000, $19,200 is used for tuition and fees, and $4,800 is used for room and board. Sergio and Jasmine's AGI, before the educational savings bond exclusion, is $130,950.

If an amount is zero, enter "0".

a. If Sergio and Jasmine file a joint, how much is the savings bond exclusion?

Round any division to three decimal places and use rounded amount in subsequent computations. If required, round your final answer to the nearest dollar.
$

b. Assume that Sergio and Jasmine purchased the bonds in Devon's name. Determine the tax consequences for Devon.

$ of savings bond interest is included in Devon's gross income.

c. Assume the same facts in part (a) except Sergio and Jasmine file separate returns. Compute the savings bond exclusion.
$

Answer 1

a

Of the $24,000 distribution, other than interest portion is not taxable that is $14,000.

Of the interest $10,000, portion of interest eligible for exclusion before phase out = $19,200/24,000 = 80%. Eligible for exclusion = $8,000 ( $10,000 * 80%)

Portion of eligible interest exclusion is phased out as MAGI is more than $117,250. Amount excluded then = ($147,250-$130,950)/$30,000 * $8,000 = $4,347

Thus, total savings bond interest exclusion = $4,347

b

As his MAGI is less than the limits, exclusion amount is $19,200.

c

For filing seperate, exclusion benefit is not available.