How Do You Figure the Tax-Free Amount?

If the total you receive when you cash in the bonds is not more than the qualified higher educational expenses for the year, you can exclude all of the interest on the bonds. If the total you receive when you cash in the bonds is more than the expenses, you can exclude only part of the interest.

To determine the excludable amount, multiply the interest part of the proceeds by a fraction. The numerator (top part) of the fraction is the qualified higher educational expenses you paid during the year. The denominator (bottom part) of the fraction is the total proceeds you received during the year.

Modified adjusted gross income limit. The interest exclusion is phased out if your modified adjusted gross income is between $54,100 and $69,100 (between $81,100 and $111,100 for joint returns). You do not qualify for the interest exclusion if your modified adjusted gross income is equal to or more than the upper limit.

Claiming the exclusion. Use Form 8815 to figure your exclusion. Attach the form to your Form 1040 or 1040A.

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