Question

Calculator Problem 5-53 (c) (LO. 2) Starting in 2004, Donald and Bella have been purchasing Series Ee bonds in their name to use for the higher education of their daughter Ashley, who currently is age 21. In 2019, they cash in $9,000 of the bonds to use for tuition, fees, and room and board of this amount, $3,000 represents interest of the $9,000, $8,100 is used for tuition and foes, and $900 is used for room and board. Donald and Bella's AGI, before the educational savings bond exclusion, is $131,250. If an amount is zero, enter"0". a. Il Donald and Bella file a joint, how much is the savings bond exclusion? Round any division to two decimal places and use rounded amount in subsequent computations. If required, round your final answer to the nearest dollar. 2.400 X b. Assume that Donald and Bella purchased the bonds in Ashley's name. Determine the tax consequences for Ashley 3,000 of savings bond interest is induded in Ashley's gross income Check My Work Previous Next

Answer 1

The taxpayer can exclude the interest income if all conditions are satisfied. • The bonds were issued after 1989 • Bond holder must be more than 24 years • The bonds were cashed during the tax year • Tax payer paid qualified higher education expenses • In case of jointly payment the AGI should be less than $153,500 and more than $123550 As all conditions are satisfied so interest income will be excluded. Since, the bonds cash in for $9000($6000 principal and $3000 interest) the amount of interest will reduced on pro rata basis qualified educational expenses were 8100* the interest exclusion will be taken = $8100/$9000=90% Interest exclusion = 3000*90%=$2700 * Qualified educational expenses only tution, fees will be taken no room and board will be considered. So, now we will check the threshhold limit i.e. more than $123550 and less than $ 153500. Since the AGI is $131250 The exclusion interest will be calculated below THE amount exceed in AGI limit=$131250- 123550 =$7700 The excess amount now divided with $30000 predetermined limit when the amount paid jointly. 7700/30000 = 25.7% = 2700*25.7% =693.9 So, the amount of interest excluded will be 2700-694= $2006 Amount of exclusion = $2006 And balance interest of 3000-2006=$994 Will be taxable.