American Opportunity Credit

[homebre973]

I know you cannot double dip, but I have a 529 plan that on the 1099Q  differentiates between earnings and basis.  Can I decide to allocate the basis only to the tuition and fees and use the earnings for the room and board thus remaining eligible for the American Opportunity Credit (only covers tuition, fees, and books).  If I do not allocate, TurboTax says that the earnings are higher than tuition and fees so I am disqualified for any credits even though there are $13000 extra in qualified expenses. 

[Anita01 · Accepted solution]

The allocation you do is actually done through the 1098-T interview.  After entering all your expenses, you are asked how much of the expenses you wan to allocate to the education credits.  Any balance is then automatically used to make your 529 distributions nontaxable.  The maximum you need to allocate to the ed credits is $4,000.  A higher allocation does not benefit you in terms of qualifying for more or higher ed credits.  You are not actually allocating a basis or earnings, meaning the program doesn't distinguish between the two in terms of applying the balance to your 529, but you can try allocating different amounts of ed expenses to see which benefits you the most.