This question is about tax year 2007. I incurred $1800 in tuition expense for my children, and I am eligible to record this expense on line 34 of my
1040 as an adjustment to my income. I am not eligible to claim the tuition tax credits on line 49.I also cashed in an EE savings bond in 2007 and earned approximately $3000 in interest. Under the terms of the bond, I am allowed to exclude from the $3000 any portion used to pay qualified educational expenses. The $1800 in tuition expense I incurred would qualify for this exclusion.
So my question is this. Should I record the $1800 in tuition expense on line 34 of my 1040 as an income adjustment and report the full amount of the interest earned on the bond ($3000) on my schedule B and include it in my total interest income on line 8a? Or would it be better to apply the tuition expense against the $3000 in interest income and reduce my interest expense on the bond to $1200, and not fill out line 34. Or can I do both?