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I'll try to make this simple as I can:

-My son is a dependent on our (his parents) tax return.

-He had $10,000 of qualified education expenses and they were reported on Form 1098-T.

-$10,000 was distributed from a Section 529 plan that was set up by his grandparents for his benefit to pay these expenses and reported as such on Form 1099-Q.

Here is my confusion: After TurboTax asks me to enter my sons qualifed education expenses it then prompts me to enter any "Tax-Free Eduction Assistance" that my son received. It instructs that tax-free distributions from qualifed tuition programs are in this catagory.
If I enter the $10,000 from the 1099-Q ,as prompted, then it calculates that we have $0.00 in education expenses and therefore are not eligible for any of the Education Credits.

Is this correct? The dollars contributed to the 529 account were after-tax dollars and therefore in that sense were not tax-free.

I was counting on getting some education credits......

I hope this makes sense.

Thank,

Halite
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I'll try to make this simple as I can:

Start with Chapter 9 of Pub 970, dealing with the allocation of allowable expenses and coordination with the credits.

Phil
Rule Your Retirement Home Fool
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"Start with Chapter 9 of Pub 970, dealing with the allocation of allowable expenses and coordination with the credits.


I've been reading Chapter 9 and I'm even more confused. It seems to deal with finding the taxable portion of QTP distributions and not addressing my concern.


halite
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-My son is a dependent on our (his parents) tax return.

-He had $10,000 of qualified education expenses and they were reported on Form 1098-T.

-$10,000 was distributed from a Section 529 plan that was set up by his grandparents for his benefit to pay these expenses and reported as such on Form 1099-Q.

Here is my confusion: After TurboTax asks me to enter my sons qualifed education expenses it then prompts me to enter any "Tax-Free Eduction Assistance" that my son received. It instructs that tax-free distributions from qualifed tuition programs are in this catagory.
If I enter the $10,000 from the 1099-Q ,as prompted, then it calculates that we have $0.00 in education expenses and therefore are not eligible for any of the Education Credits.


OK, I went and took another look at your OP. I see a large part of the problem. A distribution reported on a 1099-Q is not tax-free education assistance. See the discussion of that term in both Chapters 2 and 9 of Pub 970.

I don't know what TT can do for you and what you have to labor through yourself. Somewhere along the line you have to figure out what's the best use of the $10,000 of qualified expenses. For example, you could use $4,000 toward the American Opportunity Credit and the remaining $6,000 in determining the taxable portion of the QTP distribution. You could use it all as necessary to keep any of the QTP from being taxable, using the remainder for the credits, but that's probably not the best use of the expenses.

Maybe after you give TT the correct number for qualified expenses and tax-free assistance it will do all this for you. (It's going to need some information about your son's return since any taxable part of the 1099-Q winds up on his return, not yours.)

Phil
Rule Your Retirement Home Fool
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