Q. How do I report these expenses so that I do not have to pay tax on the interest earned on these iBonds?
A. You will receive a form 1099-INT for the interest. Enter the 1099-INT at the the interest income section. TurboTax (TT) will detect that it is savings bond interest and ask about education expenses, because the interest is entered in box 3. To get to box 3, first check the box that your 1099-Int has more than just a box 1).
At the screen "Tell us if any of these uncommon situations apply"", do NOT check the box "I need to adjust the taxable amount". Click yes when asked if you used your bonds to pay for higher education expenses.. At the "Report educational expenses and benefits" screen, enter "Qualified higher educational expenses paid in 2023". At the "Additional Bond Information" screen, you enter the cashed bonds info. TurboTax will prepare form 8815 to calculate and claim the interest exclusion.
If you are claiming the tuition credit (and most people do), you should reduce the amount of tuition you enter for the bonds (by $4000, usually)
Q. How to I report the payment of other expenses such as dorm and dining cost from the the interest earned on iBonds?
A. Room and board are NOT qualified expenses for claiming. Only tuition and fees count. You cannot count books and computers. Books and computers do count for the tuition credit, but not room & board.
If you have more I bonds, here's a loop hole: cash the bonds and roll the money over to a 529 plan within 60 days. Books and computers and room & board are qualified expenses for a 529 plan distribution. Rolling Ibonds to a 529 plan qualifies for the interest exclusion of interest.
