Is this TurboTax bug when it figures out "adjusted qualified expenses" for you to coodinate education benefit credits?

CL4504 · Feb 27, 2020 8:30:49 PM

<P>Is this a bug in TurboTax when it is figuring out "adjusted qualified education expenses" for 529? My son is a full-time college student. He has the following expenses for 2019: (1) tuition $19,560, (2) books and supplies $1,001, (3) room and board $9,504, and (4) computer/software $2,397. We have a distribution of $24,493 from 529 Plan. The TurboTax made a "Student Information Worksheet" when it tried to figure out all eligible education benefits. Part IV of the Worksheet is Education Expenses. For American Opportunity Credit, Lifetime Learning Credit, Tuition and Fees Deductions, it only considered the first two items in the above expense list, and the total is $20,561. Then it subtracted $10,561 and left only $10,000 as the "adjusted qualified expenses" for considering each of the three benefits. And when TurboTax calculated "adjusted qualified expenses" for 529 Plan, it considered all the four items in the above expense list, including room/board and computer/software, total $32,462, which is right. However, it subtracted $10,000 before getting to the "adjusted qualified expenses" for 529. In our case, the "adjusted qualified expenses" for 529 Plan is $22,462 ($32,462 - $10,000), less than our 529 distribution. So TurboTax says we are entitled to the American Opportunity Credit, but we need to pay tax for the earning part of the excess withdrawal from 529. However, from my understanding of Pub 970, American Opportunity Credit can only consider maximum $4,000 (TurboTax actually used $4,000 in preparing Form 8836). If subtracting $4,000 from our total 529 qualified expense, the adjusted qualified expense will be $28,462 ($32,462 - $4,000), which is greater than our 529 withdrawal and we have no taxable distribution. TurboTax used this wrong excess when preparing the "Form 1099-Q Summary" and transferred the incorrect tax into Schedule 1 (Form 1040), line 21. Can anyone tell me why TurboTax subtracts $10,000 for getting the 529 "adjusted qualified expenses" regardless what specific education credit to coordinate with 529. My understanding of Pub 970 is when coordinating 529 with Lifetime Learning Credit, we should allocate $10,000 from total expense, but when coordinating 529 with either American Opportunity Credit or Tuition and Fees Deductions, we should allocate $4,000 from total expense, and leave the remaining to 529 or out-of-pocket.</P>

when Box 5 exceeds Box 1, the form 1099T goes on the STUDENT's tax return.... and given most student' income level, there may not be any tax. Do not place it on the PARENT's tax return.

When you do this, what you should find is that the delta ends up on Line 1 with the abbreviation "SCH" on that line