Series EE Bond Redeemed for Qualified Education

[APATAXMike]

A client redeemed a Series EE bond and used it for Qualified education expenses. I have entered the interest in Box 3A of the 1099-INT form, but how do i make it show as non-taxable? Should i use adjustment code "J" and adjust for the full amount? Any guidance would be appreciated!

 

 

[RitaB]

You'll need to complete Form 8815, and this is a bit more complicated than they tell you on the news or at the bank.  It's very common that not all the interest is tax exempt.  Hopefully, these will help; the Instructions are with the form:

https://www.treasurydirect.gov/forms/savpdp0051.pdf

https://www.irs.gov/pub/irs-pdf/f8815.pdf

 

[APATAXMike]

Thank you for your response and guidance! Will be sure to check the IRS Pubs before posting next time.

[RitaB]

3 minutes ago, APATAXMike said:

Thank you for your response and guidance! Will be sure to check the IRS Pubs before posting next time.

You're very welcome.  This is handled very similarly (in principal) to 529 withdrawals in that the earnings may be exempt to the extent the entire amount (basis and interest) is used for education expenses.  

Hey, keep posting.  This is not FaceBook, or other forums, where there's always somebody ready to one-up you.  We are family here.  

[Gail in Virginia]

I only had one customer that bought bonds in the right time-frame and cashed them in for education purposes (okay, it was me for my son's college) and every time I found that it was better to use the amounts from AOTC or even tuition and fees deduction than to exclude the interest.  But YMMV. 

[RitaB]

42 minutes ago, Gail in Virginia said:

I only had one customer that bought bonds in the right time-frame and cashed them in for education purposes (okay, it was me for my son's college) and every time I found that it was better to use the amounts from AOTC or even tuition and fees deduction than to exclude the interest.  But YMMV. 

Yep.  I was my one customer, too.  My dad bought the bonds for me, and I tried, but my mileage wasn't great.

I did have one that asked me about it this year.  He always has a quick question at pickup.  /s

I was already dealing with his 529 and showing him he was better off having the kid claim the income in order to use AOTC.  Two years we plowed this ground. 

I wanted to hug him so tightly.

[TAXMAN]

Rita be careful for what you wish 4. I heard stories. Anyway the way that Gail did it was the way I did it for my youngster. Worked out great.