The interest you earn on U.S. Savings Bonds is free from state and local taxation. In some cases, the interest will be exempt from federal tax, too.
The bonds must be cashed in to pay higher education expenses.
You must redeem either Series EE or Series I bonds issued after Dec. 31, 1989.
The bonds must be issued in your name or your name and your spouse’s name.
The bond owner or owners must have been at least age 24 when the bonds were issued.
The bond money must be used to pay schooling costs for yourself, your spouse, or a dependent.
That means tuition and fees but not room and board.
To get the full tax break, your income can’t exceed $89,750 on a joint return, in 2004. Some tax-free interest is available, with income up to $119,750 this year.
To claim this interest exclusion, you must file Form 1040A or Form 1040 and, if married, file a joint return. In addition, you’ll also have to fill out Form 8815 and attach it to your tax return.
