Entering 1099-Q and 1098-t and claiming off campus housing costs

[Shanlrich]

My child receives tuition remission through my employer, which is listed on 1098-T as a scholarship. I withdrew funds to cover her remaining fees and to pay her off campus housing from her 529, payable to me. When I enter the info from the 1098-t and 1099-q, I am taxed. I am unable to note the off campus housing anywhere so it appears the distribution was for non-educational expenses and I don’t know how to rectify. 

[SusanY1]

If the entire distribution represented on the 1099-Q is for qualified expenses, remove the 1099-Q entry to get to the correct tax. 

The IRS requires only that taxable distributions be reported.  Once TurboTax matches income on the 1099-Q with expenses it essentially ignores the form anyway.  If you're able to do that on your own and determine there is no taxable distribution, removing the form will resolve the issue for you. 

If you need to report a partially taxable distribution, please let us know and we can offer additional assistance.

[Hal_Al]

You can't enter those expenses yet. This is a known glitch in TurboTax (TT). They are working on it (no announced fix date).   The 2025 education and 529 sections appear totally redesigned, from last year. 

As others have said, the 1099-Q is  only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you can. 

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he is off campus or lives at home) to cover the distribution. 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 (you don’t need it). You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships.

References:

1. 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." 
2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
3. "IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc; then, you do not need to enter the form."