I used distribution from a 529 plan (to pay for off campus housing = amt. for a dorm room.) You're calculating a taxable distirbution on 1099Q. How do I correct it?

[JaimeG]

Did the distribution from Form 1099-Q exceed the amount of Qualified Education Expenses?

[dihoffm]

No.  We took two separate distributions: 1) to pay for tuition directly to the school; and 2) to reimburse me directly for the expenses incurred for off-campus housing.  I limited the amount of the direct distribution to me (#2) to the amount I would have spent for an equivalent dorm room.

[JaimeG]

If the Distribution doesn’t exceed the amount of the student's qualifying expenses, then the distribution is not Taxable and you don't have to report any of the distribution on your tax return. I understand that this sounds strange, especially regarding taxes, but the IRS does not request any additional information to substantiate whether or not your Distribution exceeded your actual qualified expenses. Nevertheless it would be wise to keep a good record of these expenses just in case your return gets picked up for examination.

If the Distribution exceeds these expenses, then you must report the earnings on the excess as "other income" on your tax return. Additionally When a student’s school expenses are paid with these funds, you cannot claim a tuition deduction or either of the educational tax credits for the same expense.

One other issue that can come up with Coverdell and 529 Plans is when the Account Owner instead of the Beneficiary receives the 1099-Q. If the box on the 1099-Q that states "Check if the recipient is not designated beneficiary" is checked sometimes the IRS' computers calculate a deficiency and automatically assess penalties and interest. This is easily solved with proper communication of the situation with the IRS but nevertheless it does take time. The best way to avoid this situation is to have the distribution paid directly to the school or to the Beneficiary. This will create a 1099-Q in the name of the beneficiary instead of the account owner and keep the super-duper computers at the IRS at bay.

[karkar03]

The reply is problematic because it states what to do in the future, but not what to do now. Past versions of TurboTax allowed the user to enter ALL college expenses - tuition, books, fees, housing, meals, etc. and then used the information to determine if a tax credit was available and if not, to off-set against a 1099-Q distribution from a 529 savings account. The 2019 version of TT does not appear to allow these entries, or at least is not prompting the user for these entries - only asking for "qualified education expenses;" which is a specific tax-related term. For certain, the user (usually a parent of a kid in college) should enter in the 1099-Q information and then should off-set this with all education costs - but exactly how to do this in the 2019 TT version is not yet clear to me.

[Hal_Al]

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. 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.

Otherwise. I'm afraid you are correct, it ain't easy in TurboTax. You need to know what you are doing. 

When you do your return, enter the 1099-Q first. Then enter the 1098-T. You will eventually reach the screen "amount used to claim the education credit". If TT has not prepopulated that with $4000, you should enter (or change to) $4000 (assuming you are claiming a credit).