I have a daughter in college and will incur more than $4,000 in qualified eduction expenses this year. I also have some US Saving Bonds for which the accumulated interest has not been reported for tax purposes. Is it possible to claim the Hope (American Opportunity) credit for the first $4,000 in qualified expenses and cash in some of the bonds to pay for qualified expenses over $4,000 (and still avoid paying taxes on the associated interest)? I assume not based on the information on the IRS site, but would like to ensure I know my options.
I have been reluctant to cash in the bonds since they are still earning 4%. They are, however, continuing to accumulate untaxed interest. It seems to me the tax credit is more beneficial than avoiding the tax on the bond's interest (my MAGI does not exceed the credit limits) unless you are incurring significantly more than $4,000 in qualified expenses.
Any insights are appreciated.
Steve