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Education Savings Bonds You may be able to exclude from your gross income all or part of the interest you receive during the year on the redemption of qualified U.S. savings bonds if you pay qualified higher educational expenses during the same year. If you are married, you can qualify for this exclusion only if you file a joint return with your spouse. Qualified U.S. savings bonds. A qualified U.S. savings bond is a series EE bond issued after 1989 or a series I bond. The bond must be issued either in your name (as the sole owner) or in your and your spouse's names (as co-owners). You must be at least 24 years old before the bond's issue date. Qualified expenses. Qualified higher education expenses include the following items you pay for either yourself, your spouse, or a dependent for whom you claim an exemption. Tuition and fees required to enroll at or attend an eligible educational institution (defined earlier under Rules That Apply to Both Credits for the education credits). Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree program. Contributions to a qualified state tuition program. Contributions to an education IRA. Expenses reduced by certain benefits. You must reduce your qualified higher educational expenses by the amount of any of the following benefits received by the student. Tax-free scholarships (see Publication 520). Tax-free withdrawals from an education IRA. Any nontaxable payments (other than gifts, bequests, or inheritances) received for educational expenses or for attending an eligible educational institution, such as: Veterans' educational assistance benefits, Benefits under a qualified state tuition program, or Tax-free employer-provided educational assistance. Any expenses used in figuring the Hope and lifetime learning credits. Amount excludable. If the total proceeds (interest and principal) from the qualified U.S. savings bonds you redeem during the year are not more than the qualified higher educational expenses for the year, you can exclude all of the interest. If the proceeds are 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 $53,100 and $68,100 (between $79,650 and $109,650 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. Modified adjusted gross income, for purposes of this exclusion, is adjusted gross income (AGI) (line 18 of Form 1040A or line 33 of Form 1040) figured before the interest exclusion, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion or deduction, Exclusion of income for bona fide residents of American Samoa, Exclusion for income from Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, and Deduction for student loan interest. Use the worksheet in the instructions for line 9, Form 8815, to figure your modified AGI. If you claim any of the exclusion or deduction items (1) - (6) listed above, add the amount of the exclusion or deduction to the amount on line 5 of the worksheet, and enter the total on Form 8815, line 9, as your modified AGI. Because the deduction for interest expenses attributable to royalties and other investments is limited to your net investment income, you cannot figure the deduction until you have figured this interest exclusion. Therefore, if you had interest expenses attributable to royalties and deductible on Schedule E (Form 1040), you must make a special computation of your deductible interest without regard to this exclusion to figure the net royalty income included in your modified AGI. See Royalties included in modified AGI under Education Savings Bond Program in chapter 1 of Publication 550. Claiming the exclusion. Use Form 8815 to figure your exclusion. Attach the form to your Form 1040 or 1040A.

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