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@AmyC Should I enter the proceeds I contributed to 529 here? I am asking because it says "educational expenses" and these are technically not expenses. Even if I do this, calculations on form 8815 still do not make sense to me. It calculates the excludable interest amount which is higher than the interest reported on 1099-INT (box 3)! It is calculated as follows:
Excludable Interest = Total proceeds (principal + interest) - 50% of face value of bonds cashed.

So, let's say the sales proceeds = $450, Face Value = 200. 1099-INT interest (box 3) = $250

Excludable Interest amount on form 8815 is calculated as follows: 450 - 200 * 50% = $350 (which is more than interest received).

Note, however, that 1040 appears to be correct because it excludes the entire interest income ($250) from the taxable income.