How do you remove the american opportunity tax credit from turbo tax?

[ThomasM125 · Accepted solution]

Educations credits would appear on form 8863 in TurboTax. You may be able to delete that form in TurboTax and that would remove the credit. Otherwise, you should edit your form 1098-T entries and delete form 1098-T (Deductions and Credits, Education, Expenses an Scholarships (Form 1098-T.)

A simple way to delete forms in TurboTax online is to use the Tax Tools menu option, which is on your left menu bar when you are working in your program. Then, choose Tools and then Delete a form. Look for form 8863 in the list of forms and click on the delete tab.

If you are working in the download TurboTax program, use the Forms Mode on your menu bar to bring up the form you want to delete, then choose the Delete Form option at the bottom of the form.

[Hal_Al]

Type letme (no space between let & me) in the search box. Then press enter. Then  click  on the link "jump to letme''. 

TT will give you the option to select another tuition  credit

[chrabbit]

There is no option to delete a form in the 2022 downloaded version I'm using now.  This whole process of Turbotax automatically claiming the AOTC is very problematic.  We need an option to decline.  Turbotax needs to give clearer instructions.  If all of the educational costs were covered through 529 plan disbursements, we don't qualify for AOTC.  I just wasted hours entering all the information from those federal forms and then struggling to delete it all so Turbotax didn't illegally claim a tax credit for me.  Why can't they provide clear instructions at the beginning that we should not enter any of that info if our expenses and 529 disbursements were equal.  Better to just say we had no educational expenses.

[KrisD15]

Type

letme

into the search-box and then click the "Jump to letme" link

Uncheck the credit you do not wish to claim. 

Be aware that the program is very sticky and may not "let go" of the expenses, so you might need to delete the student worksheet if the reason for changing credits is to have expenses to allocate to tax-free assistance, like a Scholarship. 

[chrabbit]

Thanks but this does not work for the desktop version. There is no search box.  I know I posted on the wrong forum, but there was a response regarding desktop version here and there is nothing about this question on the desktop version.  But none of the mechanisms suggested work. I had to go back and remove all education entries to finally delete but it was such a waste of time.  Does anyone here work for Turbotax and can improve this software?  This is years of causing confusion to parents.  I would not recommend Turbotax for families who might ever have educational expenses after seeing this confusion.

[KrisD15]

The search is the magnifying glass in the upper right corner. 

You can also switch to FORMS (also top right just above search) and delete the forms relating to the credits.

[chrabbit]

Both of those suggestions appear earlier in the thread and neither of them are an option for me on the Desktop version.  There is no "let me" option.  There is also no option to delete if I go to files view. I  am not asking for an answer here as I already solved it by going back and removing everything related to my child being in college.  I am posting to try to save other parents the hassle by telling them not to enter anything about educational expenses unless they have already reviewed their tax situation using information outside of Turbotax because Turbotax will give the wrong advice by falsely claiming credits.  I am also hoping someone who develops this software can fix this problem in future versions.

[chrabbit]

For parents who are stuck with being forced to claim the American Opportunity Tax Credit despite not having enough qualifying expenses because expenses were paid through 529 disbursements, because you  entered info from the 1099-Q and/or 1098-T at Turbotaxes prompting, this is the only solution that worked for me.  You have to go back to the Deductions and Credits/Education section and when asked "Did you have any higher education expenses in 2022?" you have to say no.  Even though of course you did, that's the only way I found to keep Turbotax from incorrectly claiming the credit.   Without doing that, it did not allow me to remove all the information I'd previously entered.  Good luck!

[Hal_Al]

@chrabbit said " If all of the educational costs were covered through 529 plan disbursements, we don't qualify for AOTC."

That statement is not totally correct.  You still have the option to claim the the AOTC and pay a little tax on the 529 distribution.  Since that is usually (almost always) the best option, TT selects it for you.  See the example below. In that case, the taxpayer gets a $2500 credit and only pays $134 in tax ($245 if in the higher tax bracket).

_________________________________________________________________________________________

Qualified Tuition Plans  (QTP 529 Plans) Distributions

General Discussion

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q. 
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The American Opportunity Credit (AOC or AOTC) is 100% of the first $2000 of tuition and 25% of the next $2000 ($2500 maximum credit). The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit,  that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q. 
Example:
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q (on the recipient’s return)

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

There is  $1120 of taxable income (on the recipient’s return)

**Alternatively; 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. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip!  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, in case of an IRS inquiry.

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." 

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit. Most people come out better having the scholarship taxable before the 529 earnings. 

[Hal_Al]

TT is aware of the problem and is working on it. But it won't get fixed this season. Since you have the desktop software, you can make the correction in the worksheets. Go to the student information worksheet. In part VI, line 17, first column is the amount of tuition TT selected for the AOTC. Change it to 0.

See my other reply, suggesting you claim the AOTC. 

Provide the following info for more specific help:

• Are you the student or parent.
• Is the  student  the parent's dependent.
• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• Does box 5 include any of the 529/ESA plan payments (it should not)
• Is any of the Scholarship restricted; i.e. it must be used for tuition
• Box 1 of the 1099-Q
• Box 2 of the 1099-Q
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
• Room & board paid. If student lives off campus, what is school's R&B on campus charge. If he lives at home, the school’s R&B “allowance for cost of attendance” for student living with parents.
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
• How much taxable income does the student have, from what sources
• Are you trying to claim the tuition credit (are you eligible)?
• Is the student an undergrad or grad student?
• Is the student half time or more?

[chrabbit]

Thanks much for the clarification. Relieved to know Turbotax is working on more clarity for future releases!  I already deleted everything but now I am curious as to how it really calculates--long day at work and not sure when/whether I'll have time to get back to this and try it out to see what happens, but if I do, good to know where to look for what figures Turbotax is using.  I'm still dubious that it could calculate any of this correctly with the information that it asked for, though.    Since you offered, will provide the info you requested and would be curious to see if you still think Turbotax can figure this correctly.

I am the parent

Student is a my dependent (although they weren't last year as they took gap year from college)

Box 1 of 1098-T is $34472

Box 5 of 1098-T is $25250

No other scholarships

Box 5 does not include 529 plan disbursements

Scholarship in box 5 came directly from the school to cover tuition

Box 1 of 1099-Q is $18656

Box 2 of 1099-Q is $6308

Recipient on 1099-Q is the student

Room and board paid to school was $7790 (The 529 disbursement was sent directly to the school to cover the bills from the school, including tuition and room and board)

Other qualified expenses--basically none that I can tally (I could only find receipts for $44 in books; school meal plan is minimal only $400 per semester because they just have a cafe and students do most of their own shopping and cooking, but I did not try to include any additional food costs)

Student earned about $12,000 taxable income in summer job

Student is a full-time undergraduate in first full-year of college (although expects to graduate in 3 years because they transferred in a lot of credits from high school/community college, etc.)

So my concern is that every cent that was billed by the college was paid for through a 529 disbursement.  That includes room and board which qualifies for 529 distribution but not for the AOTC.  So I don't see how I can have any qualified expenses left for which to claim the AOTC.   And if I just say well I'm paying the tax on the 529 disbursements so I don't double-dip, I still don't understand how that can really work because we did in fact use those funds to pay the educational costs.  But if I don't claim the AOTC, is the student going to end up with a tax burden from the 1099-Q somehow? It's all so confusing! We usually use the FreeTax for student's tax reporting but does Turbotax share info between returns somehow if we complete the students using Turbotax as well?  (The charge for state returns is a lot higher using Turbotax.)  Thanks for your help!

[Hal_Al]

Q. So I don't see how I can have any qualified expenses left for which to claim the AOTC.   And if I just say well I'm paying the tax on the 529 disbursements so I don't double-dip, I still don't understand how that can really work because we did in fact use those funds to pay the educational costs?

A. It does not matter what funds were actually used for what expenses. You are allowed to allocate the expenses as needed to claim the tax benefits. Think of scholarship money and 529 money and loans and personal money (bank & investment accounts) as just one pile of money. You're free to disburse (allocate) from the pile. That's the tax rules. It's legal and even encouraged by the IRS*.

Your qualified ed expenses (QEE) are $34,472 +7790 + 44 = $42306

$42,306 - 25,250 Scholarship = $17,056 Adjusted QEE

Your 529 plan distribution ($18,656) is more than your AQEE, So, a small portion is already taxable even if you don't claim the AOTC. But, you should claim the AOTC.

$17,056 -4000 (for the AOTC) = 13,056 Revised AQEE

$18,656 - 13,056 = $5600 non qualified distribution. 5600 / 18656 = 30.02% of the earnings are taxable. 0.3002 x 6308 = $1893 of taxable income gets reported on the student's return. 

Reply back if you need instructions on how to enter. Making part of the scholarship taxable, might be an option, but I would need to know the exact amount of her wage income. $12,950 is the cut off point**.

*From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit".  PUB 970 even has examples of how to do the “loop hole”.

**Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the kiddie tax and other purposes (EIC. IRA contributions )

[chrabbit]

Hal_Al, I would be glad of instructions for how to enter.  I'm hoping to get back to the taxes this week and try to finish them up.  Would I still be able to enter Phoenix's taxes using the FreeTax software and keep mine on Turbotax for this to work?

[BillM223]

Are you using the CD/download software on a Mac? Try looking for the Search item in the Topics List.

@chrabbit