Question

Martin redeemed $3,000 (principal of $2,000 and interest of $1,000) of Series I Savings Bonds to pay qualified higher education expenses. His qualified expenses for the year totaled $2,500 and AGI consists of wages of $20,000. What is the amount of interest that Martin must include in income? (Round interim calculations to three decimal places)

a. $0.
b. $833.
c. $167.
d. $1,000.

Answer 1

Martin does not need to include any interest in income.

Step-by-step explanation:

To calculate the amount of interest that Martin must include in income, we need to determine the taxable portion of the redeemed savings bonds. In this case, Martin redeemed $3,000 in Series I Savings Bonds to pay qualified higher education expenses, which totaled $2,500. Since the qualified expenses are less than or equal to the value of the bonds, Martin does not need to include any interest in income. Therefore, the correct answer is a. $0.