Q. Is the value for the Basis just adding the value now plus the value of the distribution? $13,897 + $7,563 = $21,460?
A. No.
The basis is the money your grandma put into the account. You get that from your own records. The plan administrator MAY be able to provide some help.
If the $7563 distribution was totally used for qualified expenses, you can just not enter the 1099-Q. None of it is taxable regardless of what your basis is.
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. 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 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. You cannot double dip!
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."
