I have 2 kids in college. My son is in his 4th year, and I got the American Opportunity Credit for him. My daughter is in her first year of college. She did get scholarships, but I still paid ~$7,000 in tuition in 2020. I answered all the questions correctly, but TurboTax says she doesn't qualify.
One thing I noticed - for my son, I was able to insert "Amount used to calculate education credit or deduction". I used 4,000. But for my daughter, I didn't get that chance - that screen says "Earlier you told us to treat $0 as a taxable education distribution in order to claim a larger education tax credit or deduction. However, it's no longer beneficial for any amount to be treated as a taxable distribution and used for an education credit or deduction, so we'll just make this entry zero."
It seems that if I can figure out how to adjust this, I'll be able to get the Turbo Tax to say she's qualified for the credit.
Any advice?
Delete you daughter's 1098-T and re-enter.
Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary". Click delete next to the student's name. You'll then get the "Your Education Expenses Summary" screen again. Click the "Add a student" button. If box 1 of her 1098-T does not exceed box 5 by $4000 or more, you will not get the AOC for her, without adjusting your entries.
Original poster here.
I followed your advice and deleted and re-entered the 1098-T info, but same result. Still not getting the AOC even though the 1098-T Box 1 is $7,000 more than Box 5.
What mistake could I be making?
Very curious.
Have you also entered a 1099-Q? Expenses may have been applied to it.
In the personal info/dependent section, be sure she qualified as a dependent. Try deleting and re-entering her there.
Review the AOC requirements https://www.irs.gov/Individuals/AOTC
You can try this IRS tool https://www.irs.gov/help/ita/am-i-eligible-to-claim-an-education-credit
You can use this TurboTax tool https://turbotax.intuit.com/tax-tools/calculators/education/
I have made progress. Turbotax now says my daughter is eligible for the AOC. Possibly the problem was that I took a 529 distribution, which was more than the tuition I paid the college, and I neglected to account for the rest of it (Books, supplies, laptop) in Turbotax. So now she qualifies, but only gets $55 credit. As a comparison, my son got $2500. So I'm trying to figure out if the $55 is correct - seems pretty low.
Yes, throwing in a 529 distribution changes things. There are three things you can do with your Qualified educational expenses (QEE):
Entering things in TurboTax to get the desired result can be tricky.
I assume there was no 529 distribution for your son, as you got the result you wanted.
If $55 AOC is correct, you may not want to claim it. You are only allowed the AOC 4 times per student in their undergrad career. You may not want to "waste" one of yours on $55 when $2500 may be available in the future.
For more specific help, Provide the following info for your daughter:
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Qualified Tuition Plans (QTP 529 Plans) Distributions
General Discussion
It’s complicated.
For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.
You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit, that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.
Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)
-$3000 paid by tax free scholarship***
-$4000 used to claim the American Opportunity credit
=$3000 Can be used against the 1099-Q (usually on the student’s return)
Box 1 of the 1099-Q is $5000
Box 2 is $2800
3000/5000=60% of the earnings are tax free; 40% are taxable
40% x 2800= $1120
You have $1120 of taxable income
**Alternatively; you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip! When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit. Most people come out better having the scholarship taxable before the 529 earnings.
$25,805 in educational expenses(24405 + 250 +1150)
-$17250 paid by tax free scholarship
-$4000 used to claim the American Opportunity credit
=$4555 Can be used against the 1099-Q
+ 5000 Board (food)
= 9, 555 Total Qualifying expenses for the 1099-Q
Since that is more than the $8500 shown in box 1 of the 1099-Q; none of the $1135 earnings on the 1099-Q is taxable. Delete the 1099-Q from your tax return. See above for why it can and should be omitted.
With the 1099-Q out of the calculations, TurboTax should give you the full $2500 American Opportunity Credit
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