How Much Education Savings Bond Interest is Excludable if MAGI Exceeds the Limit by $5,000 in 2023?

Education savings bond program allows for the exclusion of bond interest from income under certain conditions, which are relevant for taxpayers with Modified Adjusted Gross Income (MAGI) exceeding specific limits.

Education Savings Bond Program: Interest Exclusion

The education savings bond program permits taxpayers to exclude interest earned on certain U.S. savings bonds from their income if used for qualified education expenses. However, this exclusion is subject to income limits.

Income Limits for Exclusion

For the tax year 2023, the exclusion begins to phase out for taxpayers with a MAGI between:

• $91,850 and $106,850 for single filers
• $137,800 and $167,800 for joint filers

No interest exclusion is available for MAGIs above these upper limits.

Case Scenario: MAGI Exceeds Limit by $5,000

Consider a taxpayer whose MAGI exceeds the phase-out limit by $5,000. Given the phase-out range of $15,000, the excess of $5,000 represents one-third (approximately 33.33%) of this range.

Calculating the Excludable Interest

In this scenario, the taxpayer can exclude only two-thirds of the interest that would otherwise be eligible for exclusion. If, hypothetically, the total eligible interest is $3,000, the taxpayer can exclude only $2,000 (two-thirds of $3,000).

Key Points

• Qualified bonds: Series EE bonds issued after 1989 or Series I bonds.
• Ownership requirements: Bonds must be in the taxpayer’s name or co-owned with a spouse.
• Age requirement: The owner must be at least 24 years old before the bond’s issue date.

Conclusion

Taxpayers exceeding the MAGI limits for the education savings bond interest exclusion can still exclude a portion of their interest, calculated based on how far their MAGI exceeds the phase-out limit. For detailed personal advice and further understanding, a consultation with a CPA or tax professional is recommended.

This article is intended for informational purposes only and does not constitute legal or tax advice. Always consult with a qualified professional for specific advice related to your situation.