Internal Revenue Code – Section 135

Sec. 135. Income from United States savings bonds used to pay higher education  tuition and fees

-STATUTE-

(a) General rule

In the case of an individual who pays qualified higher education

expenses during the taxable year, no amount shall be includible in

gross income by reason of the redemption during such year of any

qualified United States savings bond.

(b) Limitations

(1) Limitation where redemption proceeds exceed higher education

expenses

(A) In general

If -

(i) the aggregate proceeds of qualified United States

savings bonds redeemed by the taxpayer during the taxable

year exceed

(ii) the qualified higher education expenses paid by the

taxpayer during such taxable year,

 

the amount excludable from gross income under subsection (a)

shall not exceed the applicable fraction of the amount

excludable from gross income under subsection (a) without

regard to this subsection.

(B) Applicable fraction

For purposes of subparagraph (A), the term "applicable

fraction" means the fraction the numerator of which is the

amount described in subparagraph (A)(ii) and the denominator of

which is the amount described in subparagraph (A)(i).

(2) Limitation based on modified adjusted gross income

(A) In general

If the modified adjusted gross income of the taxpayer for the

taxable year exceeds $40,000 ($60,000 in the case of a joint

return), the amount which would (but for this paragraph) be

excludable from gross income under subsection (a) shall be

reduced (but not below zero) by the amount which bears the same

ratio to the amount which would be so excludable as such excess

bears to $15,000 ($30,000 in the case of a joint return).

(B) Inflation adjustment

In the case of any taxable year beginning in a calendar year

after 1990, the $40,000 and $60,000 amounts contained in

subparagraph (A) shall be increased by an amount equal to -

(i) such dollar amount, multiplied by

(ii) the cost-of-living adjustment under section 1(f)(3)

for the calendar year in which the taxable year begins,

determined by substituting "calendar year 1989" for "calendar

year 1992" in subparagraph (B) thereof.

(C) Rounding

If any amount as adjusted under subparagraph (B) is not a

multiple of $50, such amount shall be rounded to the nearest

multiple of $50 (or if such amount is a multiple of $25, such

amount shall be rounded to the next highest multiple of $50).

(c) Definitions

For purposes of this section -

(1) Qualified United States savings bond

The term "qualified United States savings bond" means any

United States savings bond issued -

(A) after December 31, 1989,

(B) to an individual who has attained age 24 before the date

of issuance, and

(C) at discount under section 3105 of title 31, United States

Code.

(2) Qualified higher education expenses

(A) In general

The term "qualified higher education expenses" means tuition

and fees required for the enrollment or attendance of -

(i) the taxpayer,

(ii) the taxpayer's spouse, or

(iii) any dependent of the taxpayer with respect to whom

the taxpayer is allowed a deduction under section 151,

 

at an eligible educational institution.

(B) Exception for education involving sports, etc.

Such term shall not include expenses with respect to any

course or other education involving sports, games, or hobbies

other than as part of a degree program.

(C) Contributions to qualified tuition program and Coverdell

education savings accounts

Such term shall include any contribution to a qualified

tuition program (as defined in section 529) on behalf of a

designated beneficiary (as defined in such section), or to a

Coverdell education savings account (as defined in section 530)

on behalf of an account beneficiary, who is an individual

described in subparagraph (A); but there shall be no increase

in the investment in the contract for purposes of applying

section 72 by reason of any portion of such contribution which

is not includible in gross income by reason of this

subparagraph.

(3) Eligible educational institution

The term "eligible educational institution" has the meaning

given such term by section 529(e)(5).

(4) Modified adjusted gross income

The term "modified adjusted gross income" means the adjusted

gross income of the taxpayer for the taxable year determined -

(A) without regard to this section and sections 137, 199,

221, 222, 911, 931, and 933, and

(B) after the application of sections 86, 469, and 219.

(d) Special rules

(1) Adjustment for certain scholarships and veterans benefits

The amount of qualified higher education expenses otherwise

taken into account under subsection (a) with respect to the

education of an individual shall be reduced (before the

application of subsection (b)) by the sum of the amounts received

with respect to such individual for the taxable year as -

(A) a qualified scholarship which under section 117 is not

includable in gross income,

(B) an educational assistance allowance under chapter 30, 31,

32, 34, or 35 of title 38, United States Code,

(C) a payment (other than a gift, bequest, devise, or

inheritance within the meaning of section 102(a)) for

educational expenses, or attributable to attendance at an

eligible educational institution, which is exempt from income

taxation by any law of the United States, or

(D) a payment, waiver, or reimbursement of qualified higher

education expenses under a qualified tuition program (within

the meaning of section 529(b)).

(2) Coordination with other higher education benefits

The amount of the qualified higher education expenses otherwise

taken into account under subsection (a) with respect to the

education of an individual shall be reduced (before the

application of subsection (b)) by -

(A) the amount of such expenses which are taken into account

in determining the credit allowed to the taxpayer or any other

person under section 25A with respect to such expenses; and

(B) the amount of such expenses which are taken into account

in determining the exclusions under sections 529(c)(3)(B) and

530(d)(2).

(3) No exclusion for married individuals filing separate returns

If the taxpayer is a married individual (within the meaning of

section 7703), this section shall apply only if the taxpayer and

his spouse file a joint return for the taxable year.

(4) Regulations

The Secretary may prescribe such regulations as may be

necessary or appropriate to carry out this section, including

regulations requiring record keeping and information reporting.

 

-SOURCE-

(Added Pub. L. 100-647, title VI, Sec. 6009(a), Nov. 10, 1988, 102

Stat. 3688; amended Pub. L. 101-239, title VII, Sec. 7816(c)(2),

Dec. 19, 1989, 103 Stat. 2420; Pub. L. 101-508, title XI, Secs.

11101(d)(1)(E), 11702(h), Nov. 5, 1990, 104 Stat. 1388-405, 1388-

516; Pub. L. 104-188, title I, Secs. 1703(d), 1806(b)(1),

1807(c)(2), Aug. 20, 1996, 110 Stat. 1875, 1898, 1902; Pub. L. 105-

34, title II, Secs. 201(d), 211(c), 213(e)(2), Aug. 5, 1997, 111

Stat. 805, 811, 817; Pub. L. 105-206, title VI, Sec. 6004(c)(1),

(d)(4), (9), July 22, 1998, 112 Stat. 793-795; Pub. L. 105-277,

div. J, title IV, Sec. 4003(a)(2)(B), Oct. 21, 1998, 112 Stat. 2681-

908; Pub. L. 107-16, title IV, Secs. 401(g)(2)(B), 402(a)(4)(A),

(B), (b)(2)(A), 431(c)(1), June 7, 2001, 115 Stat. 59-62, 68; Pub.

L. 107-22, Sec. 1(b)(1)(B), (3)(B), July 26, 2001, 115 Stat. 197;

Pub. L. 108-357, title I, Sec. 102(d)(1), Oct. 22, 2004, 118 Stat.

1428.)

 

 

-STATAMEND-

INFLATION ADJUSTED ITEMS FOR CERTAIN YEARS

For inflation adjustment of certain items in this section, see

Revenue Procedures listed in a table under section 1 of this title.

 

AMENDMENT OF SECTION

For termination of amendment by section 901 of Pub. L. 107-16,

see Effective and Termination Dates of 2001 Amendments note below.

 

 

-MISC1-

PRIOR PROVISIONS

A prior section 135 was renumbered section 140 of this title.

 

AMENDMENTS

2004 - Subsec. (c)(4)(A). Pub. L. 108-357 inserted "199," before

"221".

2001 - Subsec. (c)(2)(C). Pub. L. 107-22, in heading substituted

"Coverdell education savings" for "education individual retirement"

and in text substituted "a Coverdell education savings" for "an

education individual retirement".

Pub. L. 107-16, Sec. 402(a)(4)(A), (B), substituted "qualified

tuition" for "qualified State tuition" in heading and text.

Subsec. (c)(4)(A). Pub. L. 107-16, Secs. 431(c)(1), 901,

temporarily inserted "222," after "221,". See Effective and

Termination Dates of 2001 Amendment note below.

Subsec. (d)(1)(D). Pub. L. 107-16, Sec. 402(a)(4)(A), substituted

"qualified tuition" for "qualified State tuition".

Subsec. (d)(2)(A). Pub. L. 107-16, Secs. 401(g)(2)(B), 901,

temporarily substituted "allowed" for "allowable". See Effective

and Termination Dates of 2001 Amendment note below.

Subsec. (d)(2)(B). Pub. L. 107-16, Sec. 402(b)(2)(A), substituted

"the exclusions under sections 529(c)(3)(B) and 530(d)(2)" for "the

exclusion under section 530(d)(2)".

1998 - Subsec. (c)(2)(C). Pub. L. 105-206, Sec. 6004(d)(9),

inserted "and education individual retirement accounts" after

"program" in heading and substituted "section 72" for "section

529(c)(3)(A)" in text.

Subsec. (c)(3). Pub. L. 105-206, Sec. 6004(c)(1), reenacted

heading without change and amended text generally. Prior to

amendment, text read as follows: "The term 'eligible educational

institution' means -

"(A) an institution described in section 1201(a) or

subparagraph (C) or (D) of section 481(a)(1) of the Higher

Education Act of 1965 (as in effect on October 21, 1988), and

"(B) an area vocational education school (as defined in

subparagraph (C) or (D) of section 521(3) of the Carl D. Perkins

Vocational Education Act) which is in any State (as defined in

section 521(27) of such Act), as such sections are in effect on

October 21, 1988."

Subsec. (c)(4)(A). Pub. L. 105-277 inserted "221," after "137,".

Subsec. (d)(2). Pub. L. 105-206, Sec. 6004(d)(4), substituted

"other higher education benefits" for "higher education credit" in

heading and amended text of par. (2) generally. Prior to amendment,

text read as follows: "The amount of the qualified higher education

expenses otherwise taken into account under subsection (a) with

respect to the education of an individual shall be reduced (before

the application of subsection (b)) by the amount of such expenses

which are taken into account in determining the credit allowable to

the taxpayer or any other person under section 25A with respect to

such expenses."

1997 - Subsec. (c)(2)(C). Pub. L. 105-34, Sec. 213(e)(2),

inserted ", or to an education individual retirement account (as

defined in section 530) on behalf of an account beneficiary," after

"(as defined in such section)".

Pub. L. 105-34, Sec. 211(c), added subpar. (C).

Subsec. (d)(2) to (4). Pub. L. 105-34, Sec. 201(d), added par.

(2) and redesignated former pars. (2) and (3) as (3) and (4),

respectively.

1996 - Subsec. (b)(2)(B)(ii). Pub. L. 104-188, Sec. 1703(d),

inserted ", determined by substituting 'calendar year 1989' for

'calendar year 1992' in subparagraph (B) thereof" before period at

end.

Subsec. (c)(4)(A). Pub. L. 104-188, Sec. 1807(c)(2), inserted

"137," before "911".

Subsec. (d)(1)(D). Pub. L. 104-188, Sec. 1806(b)(1), added

subpar. (D).

1990 - Subsec. (b)(2)(B). Pub. L. 101-508, Sec. 11702(h)(1),

substituted "the $40,000 and $60,000 amounts" for "each dollar

amount" in introductory provisions.

Subsec. (b)(2)(B)(ii). Pub. L. 101-508, Sec. 11101(d)(1)(E),

struck out before period at end ", determined by substituting

'calendar year 1989' for 'calendar year 1987' in subparagraph (B)

thereof".

Subsec. (b)(2)(C). Pub. L. 101-508, Sec. 11702(h)(2), struck out

"(A) or" after "subparagraph".

1989 - Subsec. (d)(1). Pub. L. 101-239 substituted "subsection

(a) with respect to" for "subsection (a) respect to".

 

EFFECTIVE DATE OF 2004 AMENDMENT

Amendment by Pub. L. 108-357 applicable to taxable years

beginning after Dec. 31, 2004, see section 102(e) of Pub. L. 108-

357, set out as a note under section 56 of this title.

 

EFFECTIVE AND TERMINATION DATES OF 2001 AMENDMENTS

Amendment by Pub. L. 107-22 effective July 26, 2001, see section

1(c) of Pub. L. 107-22, set out as a note under section 26 of this

title.

Amendment by section 401(g)(2)(B) of Pub. L. 107-16 applicable to

taxable years beginning after Dec. 31, 2001, see section 401(h) of

Pub. L. 107-16, set out as a note under section 25A of this title.

Amendment by section 402(a)(4)(A), (B), (b)(2)(A) of Pub. L. 107-

16 applicable to taxable years beginning after Dec. 31, 2001, see

section 402(h) of Pub. L. 107-16, set out as an Effective Date of

2001 Amendment note under section 72 of this title.

Amendment by section 431(c)(1) of Pub. L. 107-16 applicable to

payments made in taxable years beginning after Dec. 31, 2001, see

section 431(d) of Pub. L. 107-16, set out as a note under section

62 of this title.

Amendment by sections 401(g)(2)(B) and 431(c)(1) of Pub. L. 107-

16 inapplicable to taxable, plan, or limitation years beginning

after Dec. 31, 2012, and the Internal Revenue Code of 1986 to be

applied and administered to such years as if such amendment had

never been enacted, see section 901 of Pub. L. 107-16, set out as a

note under section 1 of this title.

 

EFFECTIVE DATE OF 1998 AMENDMENTS

Amendment by Pub. L. 105-277 effective as if included in the

provision of the Taxpayer Relief Act of 1997, Pub. L. 105-34, to

which such amendment relates, see section 4003(l) of Pub. L. 105-

277, set out as a note under section 86 of this title.

Amendment by Pub. L. 105-206 effective, except as otherwise

provided, as if included in the provisions of the Taxpayer Relief

Act of 1997, Pub. L. 105-34, to which such amendment relates, see

section 6024 of Pub. L. 105-206, set out as a note under section 1

of this title.

 

EFFECTIVE DATE OF 1997 AMENDMENT

Amendment by section 201(d) of Pub. L. 105-34 applicable to

expenses paid after Dec. 31, 1997 (in taxable years ending after

such date), for education furnished in academic periods beginning

after such date, see section 201(f) of Pub. L. 105-34, set out as

an Effective Date note under section 25A of this title.

Amendment by section 211(c) of Pub. L. 105-34 applicable to

taxable years beginning after Dec. 31, 1997, see section 211(f) of

Pub. L. 105-34, set out as a note under section 529 of this title.

Amendment by section 213(e)(2) of Pub. L. 105-34 applicable to

taxable years beginning after Dec. 31, 1997, see section 213(f) of

Pub. L. 105-34, set out as a note under section 26 of this title.

 

EFFECTIVE DATE OF 1996 AMENDMENT

Amendment by section 1703(d) of Pub. L. 104-188 effective as if

included in the provision of the Revenue Reconciliation Act of

1993, Pub. L. 103-66, Secs. 13001-13444, to which such amendment

relates, see section 1703(o) of Pub. L. 104-188, set out as a note

under section 39 of this title.

Amendment by section 1806(b)(1) of Pub. L. 104-188 applicable to

taxable years ending after Aug. 20, 1996, with transition rules

applicable where States or agencies or instrumentalities thereof

maintain on such date programs under which persons may purchase

tuition credits or certificates on behalf of, or make contributions

for education expenses of, designated beneficiaries, see section

1806(c) of Pub. L. 104-188, set out as an Effective Date note under

section 529 of this title.

Amendment by section 1807(c)(2) of Pub. L. 104-188 applicable to

taxable years beginning after Dec. 31, 1996, see section 1807(e) of

Pub. L. 104-188, set out as an Effective Date note under section

36C of this title.

 

EFFECTIVE DATE OF 1990 AMENDMENT

Amendment by section 11101(d)(1)(E) of Pub. L. 101-508 applicable

to taxable years beginning after Dec. 31, 1990, see section

11101(e) of Pub. L. 101-508, set out as a note under section 1 of

this title.

Amendment by section 11702(h) of Pub. L. 101-508 effective as if

included in the provision of the Technical and Miscellaneous

Revenue Act of 1988, Pub. L. 100-647, to which such amendment

relates, see section 11702(j) of Pub. L. 101-508, set out as a note

under section 59 of this title.

 

EFFECTIVE DATE OF 1989 AMENDMENT

Amendment by Pub. L. 101-239 effective, except as otherwise

provided, as if included in the provision of the Technical and

Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such

amendment relates, see section 7817 of Pub. L. 101-239, set out as

a note under section 1 of this title.

 

EFFECTIVE DATE

Section applicable to taxable years beginning after Dec. 31,

1989, see section 6009(d) of Pub. L. 100-647, set out as an

Effective Date of 1988 Amendment note under section 86 of this

title.

 

PROMOTION OF PUBLIC AWARENESS OF PROGRAM

Section 6009(b) of Pub. L. 100-647 provided that: "The Secretary

of the Treasury or his delegate shall take such actions as may be

necessary to make the general public aware of the program

established by this section [enacting this section, amending

sections 86, 219, and 469 of this title, renumbering former section

135 of this title as section 136 of this title, and enacting

provisions set out as notes below and under section 86 of this

title]."

 

PARENTAL ASSISTANCE WITH TUITION STAMP STUDY

Section 6009(e) of Pub. L. 100-647 directed Secretary of the

Treasury or his delegate, after consultation with Secretary of

Education or his delegate, to conduct a study of feasibility of

using stamps or similar programs to encourage and facilitate

savings by parents towards purchase of Series EE bonds eligible for

exclusion and to submit, not later than Dec. 31, 1989, results of

such study, together with any recommendations deemed appropriate,

to Committee on Ways and Means of House of Representatives and

Committee on Finance of Senate.

 

-End-