Question 1

A single taxpayer redeemed Series EE savings bonds in Year 1. The total proceeds were ,000 (,000 principal + ,000 interest). The taxpayer used all proceeds to pay for qualified higher education expenses. The taxpayer's modified AGI is ,000. The phase-out range for the exclusion is ,000 - ,000. What amount of interest is excludable from gross income?

Accepted Answer

Calculate the reduction percentage: (MAGI - Bottom of Range) / (Top - Bottom). Multiply total interest by (1 - reduction %).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying the phase-out percentage to the principal + interest instead of just the interest, or calculating the taxable amount instead of the excluded amount.

How to approach this question

Full Answer

Common mistakes

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