Education expenses partially paid with savings bond

[Roger11]

My son's college expense reported in box 1 of his 1098-T was paid directly to the college from a savings bond.  He also purchased a book from the college that was reimbursed to me from the savings bond.  We also had to purchase materials for the class that were not paid from the savings bond.  How do I deduct the part we paid without TurboTax including the amount from the 1098-T paid from the bond?  I'm assuming I can't deduct the part paid by the bond, but can I?

[Hal_Al]

Qualified savings bonds cashed in the same year as educational expenses were paid can have the interest on those bonds excluded fro taxation.  Qualified savings bonds are those in the parent's name (not the student's). After entering the 1099-INT for the interest, the TurboTax (TT) interview will ask the right questions to see if the bonds qualify.

"I'm assuming I can't deduct the part paid by the bond, but can I?"  Yes you can, but you can not double dip.

If you didn't pay enough tuition and other qualified expenses to claim both the savings bond interest exclusion and the tuition credit, you will have to choose how to divide up the expenses.  The tuition credit is almost always more generous.

[Roger11]

Thanks for your reply.  I think I may have left out an important piece of info.  The bond was started by my parents when my child was born, and my parents put the bond in my child's name.  My parent's accountant took care of disbursement of the bond funds, part going to the college and part coming to me to reimburse the books.  How much does that complicate this situation?

[Hal_Al]

No. That does not change the answer.  Furthermore, since  the bonds are in the child's name, interest will be reported on the child' s return.  Depending on the amount, he may not have to file.  On the other hand, depending on the amount he may be subject to the "kiddie tax" (child's investment income is taxed at parent's  marginal tax rate.

If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2019 if he had any of the following:

1. Total income (wages, salaries, taxable scholarship etc.) of more than $12,200.
2. Unearned income (interest, dividends, capital gains) of more than $1100.
3. Unearned income over $350 and gross income of more than $1100
4. Household employee income (e.g. baby sitting, lawn mowing) over $2100 ($12.200 if under age 18)
5. Other self employment income over $400, including box 7 of a 1099-MISC

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.

If his only income is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering it on your return, using form 8814. Enter at Less common income / Child's income.

[Hal_Al]

References:

https://www.finaid.org/savings/bonds.phtml (bonds must be in parent's name)

https://www.laurelfinancialgroup.com/content/TheKiddieTax2019  (savings bonds interest subject to kiddie tax)

[Roger11]

Now I know how to proceed with my son.  I'll run through a couple different scenarios in TurboTax to see what will work out best.

This will also help me be more prepared for my daughter when she starts college in a few years.

Thanks again for all your help!

Roger

[mominmissouri63]

where do you indicate in the TT program (enter it) that the US bond interest income is for college expense?  is it immediately after entering the 1099-INT in the income section, when it asks if we "need to adjust the taxable amount"? 

[Hal_Al]

Do not check  we "need to adjust the taxable amount"? 

The education interview will come up, automatically a few screens later. Be sure you entered the savings bond interest in box 3, not box 1, of the 1099-INT.