$500 x $1,200/ $2000 = $300 exclusion
Hence, $300 interest amount is excludable.
Exempt interest is defined as interest that, under Section 103 of the Internal Revenue Code, is excluded from the recipient's total income for purposes of federal income tax.
Interest income that is tax-exempt is not taxed in any way, especially not at the federal level. Additionally, certain municipal bonds could be "triple-exempt," meaning that no federal, state, or local taxes are due.
Taxes and the amount of the exemption are determined by the source of income and the amount of the scholarship.
The complete question is as follows:
Assuming the daughter received the $1,000 scholarship and the parent's income from other sources is $121,250, how much of the interest is excludable?
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