In february of the current year, paul and jean, a married couple, cashed a qualified series ee savings bond they bought in november 2008. they received proceeds of $7,132, representing principal of $5,000 and interest of $2,132. in the current year, they pay their daughter’s college tuition. the qualified education expenses they paid in the current year totaled $4,000. they are not claiming an education credit for the expenses, and they do not have an education ira. how much interest income can paul and jean exclude?

Explanation:

Calculation of amount of interest income Paul and Jean can exclude =

where I = interest received, E = educational expenses, P = principle.

Proceeds received                                 $7,132  

Principle                                                         $5,000  

Interest                                                         $2,132  

Qualified Higher Educational expenses$4,000

=2132*(4000/(5000+2132))= $1,195.74  

Answer is 1,195.74 exclusion

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