How do I enter a 1099Q where the Parent is the recipient of the 1099Q but the child graduated in the spring and can no longer be claimed as a dependent

[bartzda67]

Here is my question / situation that I am completely stuck on how I handle this.

My son was a 5th year senior and graduated in May 2024.  He got a job in June 2024 and as such is no longer a dependent (he also turned 24 in 2024, so cannot be a dependent anyways).  I paid for his college in Jan-May 2024 with our 529 and I as the parent am listed as the "recipient" on the 1099Q.   The 1099Q shows I took 11,000 from his 529 plan (funds sent to me and then I paid the school, as well as separate room and board).   I am having issues when trying to enter the 1099Q and associated 1098T into my return as well as if I try to enter both into his return.

Here are my rough expenses amounts

1099Q Line1 - $11000 - Total 529 distributions

1098T Line 1 - $7000 - Total Tuition from his college

Additional expenses paid for Spring Semester

Room - $3000

Board - $2500

Hence total qualified expenses are $12500 vs $11000 in 529 withdrawals.

If I try to enter the 1099Q on my (Parent) taxes, it allows me to enter in the $11000 total WD (of which we'll say $5000 is earnings and $6000 is Basis), but I can only enter in $7000 of tuition.  I have no ability to enter in the other $5500 of qualified expenses (room and board).  Now I have a taxable event as TT thinks I drew out more from my 529 than I have expenses.  That is not correct and I don't know how to fix it on my return if I'm entering these both there.....

So I did some searching on this forum and someone noted the same issue but they said enter both the 1099Q and 1098T on the child's taxes.  So I tried that and when I enter the 1099Q on my sons return, I enter "no" to "my son" (i.e. I select someone else) is the recipient on the 1099Q?, TT tells me he does not need to enter the 1099Q.

So I am at a complete loss here.  What do I do with this 1098T and 1099Q.  When he was a dependent, I simply just entered both into my returns (note I do not qualify for any Hope or other ed credits) and I would be able to enter in tuition, room and board and be all done here.

Help!!!

[AmyC]

Let's cover this by form:

1099- Q

Since the 1099-Q covered room and board and some tuition, it should not be entered. 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.

1098-T

Whoever claims the person on the 1098-T, claims the student credit. Your son will enter the 1098-T. He will qualify for the Lifetime Learning Credit on the portion of tuition not covered by the Q. AOTC is limited to 4 years and I assume you already took those credits.

[bartzda67]

Hi Amy -

Thanks for your quick reply!  A follow up question.  How does the IRS know that the $11000 I withdrew from his 529 last spring was fully covered by expenses.  I get they should be able to tie the $11000K from the Q and 7000 from the T, but how will they know we had $5500 in other expenses.

I've never taken any of the educational credits when he (and my other kids) were dependents as I believe my wife and I phase out, but are you noting that now he should be able to claim $1500 of non 529 "expenses" towards part of his lifetime learning credit?

[Hal_Al]

Q.  I have no ability to enter in the other $5500 of qualified expenses (room and board)?

A. To get the screen to enter Room & Board, answer yes when asked if you have book expenses (after entering the 1098-T)

Since your son is not a dependent, and you never claimed the AOTC, he can claim it for 2024.  It's worth up to $2500.  You should pay a little tax on the 529 distribution so he can do that. He can already use $1500 of expenses for the credit (12,500 -11,000 = 1500).  The AOTC is 100% of the first $2000 and 25% of the next $2000.  So, depending on your tax bracket, you should give him another $500 or $2500. 

Putting the 1099-Q on his return is not an option, since you are the recipient. 

The interview is complicated and it's easy to make mistakes. If the above suggestion doesn't solve the problem,  Here's an easier workaround in TurboTax:

Enter the 1099-Q. When asked who the student is answer: someone else not listed here (lying to TurboTax to get it to do what you want does not constitute lying to the IRS).  Enter the student's name when asked.  A few screens later, you'll get one simple screen to enter expenses. Press Done at the 1099-Q summary screen, to get there. . You do not have to deal with the complicated “Educational expenses and Scholarships” (1098-T) section later (delete the 1098-T, if you previously entered it).

If you are going to allocate  more expenses, to him, for the AOTC, at that expenses screen, enter either $500 or $2500 in the box "Tax-free assistance".  This reports some of the earnings as taxable but  claims the tuition credit exception to the penalty. TT will prepare form 5329 to claim the penalty exception.