Savings bond interest

[Terry O]

Every year I get something different - - - -sigh

Client's son (24 - -has not been a dependent for 3 years) is returning to school and they want to cash in bonds to pay for the tuition. Most of the bonds were purchased after 1989 - -and I am pretty sure I already know the answer - - -but my questions are 3 fold:

1 - -can they claim him this year as a dependent - -thus taking the interest exclusion - -(kids earnings were under $5000 I believe)?

2 - - if someone claims the interest exclusion - - does that prevent them from taking the college credit ?

3 - - how do I get out of this business?? this call came at 6 pm last night (I work from home) and it is a relative - -so I thought there was a medical issue - - -sigh

:angry:

[mcb39]

Terry, you got a laugh out of me, with question #3. I feel your pain.

#1 No dependency. He is not under age 24 and made over $3,650.

#2 Whose name are the bonds in; if the parents, the interest is not exempt except for themselves or dependents; and apparently he is not a dependent.

No matter what, it shoud not have any effect on the tuition credit.

#3 Relatives or relatives of relatives seem to be the biggest thorns.

Am glad you made me laugh, because we had snow on the ground this AM. I am NOT ready for that. 6 pm is not late to receive a call when you work from home. I had one Sunday night at 9:30.....I let the answering machine take it. :dunno:

[Gail in Virginia]

In figuring the exclusion of interest from savings bonds, you have to use adjusted qualified education expenses. That means you have to reduce the tuition by the amount used to calculate the American Opportunity Credit or LIfetime Learning Credit before calculating the exclusion for savings bond interest. So while the interest exclusion does not affect the credit, the credit might affect the exclusion. At least that is how I read the instructions. See Pub 970.

[Terry O]

Thanks Marilyn & Gail !