Deducting Savings Bond Interest for 529 Contribution

[jbstav17]

I am attempting to deduct the interest I paid for series I bonds from my federal taxes, as I used the proceeds to contribute to my kids 529 accounts. Every which way I do it, the system is saying that I do not get a duduction. What am I doing wrong? Please post step by step instructions

[AmyC]

Follow these steps:

1. You enter the interest in box 3, since savings bond.
2. None of these apply, continue
3. Did you cash I savings bond, select yes
4. Continue
5. Higher education expenses?, select yes
6. Continue
7. Select all that apply
8. Continue
9. Continue through answering the questions to see if you qualify

[jbstav17]

I clicked through all of those and entered my numbers. I earned roughly $3500 in series I bond interest in 2024 and contributed over $4000 to my child's 529 account, yet the system is still saying I don't qualify for a deduction. As far as I'm aware I meet all of the other criteria for the deduction.

[AmyC]

Here is an article with the full list of rules and requirements, check it out. How To Roll Over U.S. Savings Bonds Into a 529 Plan. If you qualify, go back through the program with an eye on the rules. If you still need help, let us know.

[jbstav17]

Indeed I meet all of the requirements and the form still does not seem to be working. Are you able to further help with this?

[AnnetteB6]

To take a closer look at the situation, it would be very helpful to have a diagnostic copy of your tax file.  The diagnostic file will not contain personally identifiable information, only numbers related to your tax forms.  

If you would like to provide us with the diagnostic file, follow the instructions below and post the token number along with which version of TurboTax you are using and what states you are filing in a follow-up thread.  

Use these steps if you are using TurboTax Online:

• Sign in to your account and be sure you are in your tax return.
• Select Tax Tools in the menu to the left.
• Select Tools.
• Select Share my file with agent.
• A pop-up message will appear, select OK to send the sanitized diagnostic copy to us.
• Post the token number here. 

If you are using a CD/downloaded version of TurboTax, use these steps:

• Select Online at the top of the screen.
• Select Send Tax File to Agent.
• Click OK.
• Post the token number here.

@jbstav17 

[AnnetteB6]

Without a diagnostic file to better understand your particular situation it is difficult to say why your savings bond interest is not being excluded from your income.  I have tested the scenario you described and the program is working as expected and the savings bond interest is being excluded from income.  

There are a couple of items that may be a factor in the result you are seeing.  First, there is a Modified AGI limit to consider when excluding savings bond interest.  If your MAGI falls within a certain range, then you may only be able to partially exclude the savings bond interest, or you may not be able to exclude any at all.

Second, after you have entered the qualified education expense (your 529 contribution), there will be another screen asking about the savings bonds that were cashed.  The first box asks for the total proceeds from cashing the bonds.  Then, the next three boxes ask for the face value of the bonds that were cashed.  There are three boxes, each for a particular type of bond.  If these boxes are not completely accurate, then the exclusion calculation will not be accurate either.  These numbers are used to determine the amount of the exclusion.  If the face value of the bonds is set to zero or left blank, then there will not be any exclusion allowed.

@jbstav17