EE Savings Bond for education and American Opportunity Credit

[caytrewaso]

I am eligible to take the American Opportunity education credit. I have also redeemed some EE bonds, which Turbo Tax indicates I can reduce my interest income if it was applied to tuition. Can I take the Credit AND the utilize the bond interest reduction?

[CarolC · Accepted solution]

You can use both if each is applied to its own education expenses.  You cannot use the same expenses for more than one education benefit.

For example, you have $2,900 in education expenses.  You received $1,900 in principal and interest from your savings bond and used the funds to pay for $1,900 in qualified education expenses.  You can use the remaining $1,000 in expenses to qualify for the American Opportunity Credit.

Click this TurboTax FAQ What are Examples of Education Expenses for more information.

[Hal_Al]

Note that it is not just the amount of interest on the savings bonds that counts, but the total amount of bond(s) redeemed.

You may split  the educational expenses any way your want.  Using an example: you have $10,000 of tuition and redeemed a $10,000 bond that includes $3000 interest.  You may count $4000 of the education expenses to claim the  American Opportunity Credit. That leaves  $6000 to use for  the savings bond. 6000 divided by 10,000 (the bond redemption amount) = 60%. 60% of the $3000 interest will be excluded (not taxed). 40% of the interest (0.40 x 3000 = $1200) will be taxed. TurboTax will prepare form 8815 to show this calculation.

[FishersV]

Does this mean that you can split the amount from the 1098-T in box 1 between a deduction for Savings Bond Interest and a deduction for the American Opportunity Credit?  TurboTax calls for it all to go into the area for "Tuition and enrollment fees" under "Education Expenses."  That doesn't allow for any to be placed under the entries for Savings Bond Interest deductions.

[Hal_Al]

@FishersV - Yes, that's what it means.  TurboTax (TT) assumes you want to use the full $4000 for the AOC.  You have to manually reduce the expenses, by $4000, before you enter it at the savings bond screens. 

If you use some other amount (than $4000), you'll have to use a work around at the tuition credit section, as well as manually adjust at the savings bond section