When education bond proceeds are used partially for personal expenses, what is the portion considered taxable?

When education bond proceeds are used partially for personal expenses, the taxable portion is determined based on the amount of the bond proceeds that is allocated to non-qualified expenses. In this context, when education savings bonds are redeemed, if they are used exclusively for qualified higher education expenses, such as tuition and fees, the income from the bonds can be excluded from taxable income. However, if any portion is used for personal expenses that do not qualify, that portion becomes taxable.

The correct answer indicates that $100 is the amount that is recognized as taxable, suggesting that, in this scenario, a portion of the education bond proceeds has been used in a manner that does not meet the qualified expense criteria. The situation implies there were personal expenditures involved, thereby requiring the taxpayer to include that specific dollar amount in taxable income.

Understanding this distinction is essential for correct tax reporting, as only the earnings related to the non-qualified amount will be subject to taxes. Therefore, recognizing which portion of the proceeds is deemed non-qualified allows the taxpayer to comply with tax regulations accurately, hence the identification of the taxable amount correctly as $100.