26 U.S.C. § 135: Income from United States savings bonds used to pay higher education tuition and fees

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. the aggregate proceeds of qualified United States savings bonds redeemed by the taxpayer during the taxable year exceed the qualified higher education expenses paid by the taxpayer during such taxable year, 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). 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). such dollar amount, multiplied by 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 2016” in subparagraph (A)(ii) thereof. 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). after December 31, 1989 , to an individual who has attained age 24 before the date of issuance, and at discount under section 3105 of title 31 , United States Code. the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, 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. 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. The term “eligible educational institution” has the meaning given such term by section 529(e)(5). without regard to this section and sections 85(c), 137, 221, 911, 931, and 933, and after the application of sections 86, 469, and 219. a qualified scholarship which under section 117 is not includable in gross income, an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, 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 a payment, waiver, or reimbursement of qualified higher education expenses under a qualified tuition program (within the meaning of section 529(b)). 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 the amount of such expenses which are taken into account in determining the exclusions under sections 529(c)(3)(B) and 530(d)(2). 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. 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.