Question

Eileen and Hal, a married couple filing jointly, received $10,000 of Series I bond interest in 2020. If all the proceeds of the redeemed bond were used to pay qualified education expenses and their modified adjusted gross income exceeded the applicable dollar amount by $30,000, how much of the bond interest could they exclude from income?

Answer 1

$0 amount of interest to be excluded from Income as whole Interest amount has been phaseout.

Explanation

Interest income on bond can be excluded from Income if follwing two condition are fulfill.

1) Bond are Series 1 or Series EE bond bought after 1989

2) Redemptiom money is used for the payment or Expense of Qualified Equcation expense

If the bomd amount is more then Qualified Expense only amount of Interest can be excluded from the Income . and Further this interest are phase out if exceed the threshold based on the level of Modified Adjusted Gross Income.

Phaseout Threshold for Couple filling jointly for 2020 is 123550 and phaseout limit is 153550

As Given that MAGI exceeds the phaseout threshold by $30000

Phaseout Reduction = Redemption amount × Income Exceed by Phaseout thresold / (Differences of Phaseout thresold - Phaseout limit ie $30000)

=10000×30000/(153550-123550)

=10000

Tax free Redemption amount of Bond = $10000-10000

=$0