US Savings Bonds

Archive for November, 2006

Question: What should I expect? I had Savings Bonds and financial aid ?

In this past year I cashed Savings Bonds, and the interest came to $510. I’m a college student and received a subsidized loan totaling $5000.00, but they sent me a form saying “amounts billed for qualified tuition and related expenses” is $4254.10. I work part time and paid about $780 in Federal taxes and about $330 for state taxes.

My parents still claim me as a dependent since I really don’t make much and they are helping me with bills. So, I’m pretty sure I get taxed on the interest from the Savings Bonds, but does the loan effect how much I will get back or pay? And as for the Savings Bonds, around how much will I have to pay for that?

Thanks!

Answer: Dear Manda: There is a lot going on in this question so lets try. First you are probably right the interest is taxable if the bonds were issued in your name. If they had been in your parents name and they were at least 24 years old on the issue date the interest would not have been taxed if the proceeds were used for college expense. Interest is reported on Sch B or directly on the 1040.

Now the loan, if your parents claim you they maybe entitled to the education deduction for tuition and fees i.e. Hope/Lifetime. See IRS Pub 17 page 235. You will use the number on the 1098-T for the credit. Use form 8863.

This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provide. Click on my profile to read more.
Errol Quinn Enrolled Agent Master Tax Advisor

Don’t forget when you file to not claim yourself on your return.

Ric Edelman Show 07/11/09 – Personal Finance

Can an investor redeem Series EE US Savings Bonds and Series I US Savings Bonds Tax free for education purposes?

Yes, investor redeem Series EE US Savings Bonds and Series I US Savings Bonds Tax free for education purposes if certain qualifications are met.

Series EE US Savings Bonds issued after 1989 and Series I US Savings Bonds

For Series EE US Savings Bonds issued after 1989 and Series I US Savings Bonds the interest income earned will be federally and state tax exempt, if the savings bond is redeemed to pay qualified higher education expenses for the owner, owner’s spouse or dependents.

To redeem Savings Bonds for education, what are qualified higher education expenses?

Qualified higher education expenses are tuition and fees (not including room and board) and Contributions to 529 plans and Coverdell ESA s.

To redeem Savings Bonds for education, what affect the amount of Savings Bonds Redemption?

Scholarships, fellowships, employer provided educational assistance and other tuition reduction programs reduce these expenses. The owner of the US savings bond must have been at least 24 years old before the issue date of the US savings bond.

The amount of the interest exclusion is phased out based upon modified adjusted gross income (which is indexed yearly for inflation).