[Kbob]

Only the original owner (who is also 24 or older at the time of purchase) of the bonds qualifies for potential use of the interest exclusion (for self, spouse, or dependent), per IRS and numerous professional articles. REG Sim 19, however, ignores this original owner component.

A portion of the question stem says this concerning Series EE bonds:

“Phyllis received $10,000 when she redeemed her Series EE bonds during the year. Phyllis was given the bonds for her birthday 23 years ago; the cost of the bonds was $3,500. The entire $10,000 proceeds were used for college tuition by the couple during the year.”

Phyllis is not the original owner of the bonds, so I included the interest in income. Sim said this was wrong, with this explanation:

“The $6,500 of interest earned on the Series EE bonds ($10,000 – $3,500) that were redeemed and then used for college tuition is excludible from gross income (see the Instructions for Form 8815). In general, a person may exclude the entire interest amount if the following four conditions are satisfied:

The taxpayer cashed qualified U.S. savings bonds in the current year that were issued after 1989.
The taxpayer paid qualified higher education expenses in the current year.
The taxpayer’s filing status is not married filing separately.
The taxpayer’s modified AGI is below $145,750, which it is, at $98,911.”

Those reasons are all great, but they’re missing two key requirements for exclusion eligibility: 1) original owner status and 2) age at time of purchase. Phyllis clearly was not the original owner, since stem says these bonds were a gift. For argument’s sake, assuming she were the original owner, she would’t have been at least 24 (stem says she is now 30, so she would have been no older than 7), so she would again fail the requirements for income exclusion.

Agree? Disagree? I’d love to get some additional takes on this. Been burning up my brain for three hours now.

Seth

[jpowell31]

ummm…yeah I'd agree with you there… wtf. is this ninja or becker? if ninja, maybe you can ask jeff if there aren't any other responses here that make sense.

[jpowell31]

I've been looking for some help on the Farm depreciation SIM #46 if you could take a look. otherwise I'm going to ask jeff on that one.. for the sake of avoiding typing too much…go to the solution and check out the old truck depreciation on year 2.:

Old truck depreciation:
•$44,000 × 25.5% × 50% = $5,610 half-year convention, 150% declining balance

why is the 50% there? it's year 2 AND he elected out of bonus depreciation allowed…

[Kbob]

Ninja. I probably will ask Jeff, but at least it's nice to see I'm not the only one who sees an issue with sim 19. Thanks.

Re: sim 46, I believe the 50% is because you only get a half-year of depreciation in the year of disposal. The MACRS table is set up to calculate the full year, so we have to adjust down in consideration of the disposal.

Hope that helps.

[Kbob]

Btw, I got the half-year wrong the first time I did it. Was all primed to compute the half-year during acquisition. Never considered the same convention applied during disposal. Live and learn, I guess.

[jpowell31]

ohhhh. that would make sense. i've never seen an example that takes that into account but know that from memory. it's scary how i can recite things word for word and draw a blank when it comes to applying it given the situation. i'm a visual learner i guess. now i wish i had more examples…. thanksss

[Author]

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