Life tome.learning credit for graduate..

[confusedrf]

I thought I was done with all this!

Here we go.... My daughter is 22 and lives at home working 2 part time jobs and attending school.

Her 4th semester of college occurred in the Spring of 2022 during which she  graduated. She was a full time student during this time. She then started up graduate school in the fall of 2022 part time.

I received a1099T from her graduate school: 3800.  I received a 1099Q showing an amount of 3800 as well.  I also received a1099T from her 4 year school showing that semesters payments:13k.

I decided to enter all 3 of these into my tax return as I have done each year. As usual I added my daughter since she lives at home and we spend well over 50% of what it costs her to live.  I was not expecting any credits or anything as I have had the American opportunity credit for 4 years already.

To my surprise it seems to indicate we  earned something called the lifetime learning credit to the tune of about $900.  The $900 was based off approximately $4500which  I cannot figure how TT calculated.

Does this somehow make sense. Am I somehow entitled to this.... I was not expecting it. I generally understand 75% of how all this works and the rest is sort of a faith and turbo tox.

[ThomasM125]

You may be entitled to the Lifetime Learning Credit. It kicks in after your eligibility for the Amarican Opportunities credit ends. The credit is 20% of the first $10,000 worth of education expenses. There are limitation on receiveing it based on your income (must be under $180,00 for joint filers in 2022 and $90,000 for single filers.) It is not limited to a certain number of years of school and you don't need to be enrolled in a degree program. You can lean more here:  Lifetime Learning Credit

[confusedrf]

Is it a one time thing

[BillM223]

No, you can get the Lifetime Learning Credit year after year if you qualify. "There is no limit on the number of years you can claim the credit" - see this IRS page.

[Hal_Al]

The Lifetime Learning Credit (LLC) should be $2000 based on the $13K undergrad 1098-T.   The $3800 Grad school tuition offsets the 1099-Q for $3800.  Although you could have offset the $3800 1099-Q with room and board. I assume the $3800 was in box 1 of the 1099-Q and the $13K was in box 1 of the 1098-T. Was there an amount in box 5 of the 1099-T?

The LLC is non refundable and can only be used to offset an actual tax liability. 

[confusedrf]

I am looking at this again. To answer your questions there is nothing in any Box 5 anywhere.

I am trying to figure out how it came up with the 4493 number. I am looking at form 8863 I'm not sure what's going on here but in the end it seems to end up with the 899 amount in the non refundable section.

Form 8863 page 2 line 31 lifetime learning credit shows the 4493 number.

On the 1st page in line 12 it seems to be multiplying the 4493 by 20% to get the 899.

On form 1040 on line 16 it lists my tax and then it seems to reduce that tax by a $500 child credit and then further by the $899. Then in line 23 under other taxes it adds back in $1466 for the SE tax which I'm not even sure what that is but my wife is self employed so hopefully that makes sense.... In the end when looking at the tax I owed versus what we paid in and factoring in her estimated taxes on line 26 we end up with a refund.

However I believe my refund would be $899 less had the 899 not appeared on line 20 on the 1040 form.

I wonder who dreams all this craziness up!

[confusedrf]

Any idea where they got the 4493 number.

[confusedrf]

Before I just take a leap of faith and assume TT  knows what it's doing.... which it probably does…. and based on the information I provided would you have any idea why it's only awarding the $899 based on 4493....where did the 4.4k come from?

[Hal_Al]

Q. Before I just take a leap of faith and assume TT  knows what it's doing.... which it probably does?

A. Not based on my experience with the software.  You need to have an idea of what the results should be, so you know ho to make the entries.

Q. Do you have any idea why it's only awarding the $899 based on 4493....where did the 4.4k come from?

A. Not without looking at the forms and worksheets.

   1.It' probably a matter of allocating expenses to the various tax benefits. 

   2.  You could be in the income phase out range for the LLC .For TY2022, the amount of your LLC is gradually reduced (phased out) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).

   3. TT has made a mistake and/or you've entered something wrong.

   4. Your calculated tax is too low to get the full credit (the LLC cannot be applied to SE tax, only income tax.

It will probably be helpful, if you delete the excess information.  The 1099-Q and the  1098-T are only informational documents. The numbers on them are not required to be entered onto your (or your student's) tax return.

Delete the 1098-T for $3800. It is not needed for any of the calculations. (The $13K 1098-T is all you need to enter to get the maximum LLC).  Delete the 1099-Q.  It's fully covered by expenses* (the $3800, room & board and probably books and a computer).

*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." 

[confusedrf]

We are not even close to the married limits you mentioned!

Perhaps the behavior of the lifetime learning credit is different from the American opportunity credit and the way it's computed..Can you elaborate on what this means a little bit more: 

Re:

Your calculated tax is too low to get the full credit (the LLC cannot be applied to SE tax, only income tax.

I guess I'm confused how could my calculated tax be too low et cetera

[Hal_Al]

The LLC is a maximum of $2000 and based on your numbers, you should initially  get the maximum.  But what if your tax liability (line 16 of form 1040) is only $1399. TT would give you the $500 Other dependent credit (not child tax credit). That would leave only $899 needing to be offset by the LLC.  So, you only get $899 LLC, rather than the full $2000. 

[confusedrf]

I am back. My line 16 is just under 9k.

On the education credits worksheet Form 8863 section 3 line 31..A value of 4493 appears. Can someone tell me how Turbo tax is calculating that? 

I also reviewed the 1099Q that shows a gross distribution of just under $4000 to a graduate school. I reviewed the 2 1099 t's the one for roughly 12K from her 4 year school that she completed in the Spring of 22 and the other for the just under 4K for her graduate school from the fall. Everything seems in order. I would assume the matching 1099Q for the 12K from her 4 year school was received last year in part of last year's tax records.

Surely there is some way of knowing how turbotax is coming up with that 4493 number... It's taking 20% of that to get the 899.

[Hal_Al]

Q. On the education credits worksheet Form 8863 section 3 line 31..A value of 4493 appears. Can someone tell me how Turbo tax is calculating that? 

A. See the worksheet on  page 8 of the instructions for form 8863 at https://www.irs.gov/pub/irs-pdf/i8863.pdf

The TurboTax version is the Student Information worksheet, Part VI, 4th column (Lifetime Learning Credit)

It appears that entering the 1099-Q(s) is causing the confusion.  Delete them, since you have determined they're fully covered by expenses. 

[confusedrf]

I will read that this evening.  I was hesitant to delete the Q since I had entered it every Other year without issue. I did not want to draw attention by leaving it out.  At first I thought it had to do with the fact that the Q always was reported for 2022 where as its corresponding T was recorded inr 2021...it was always off by a semester. BUT ...I think I offset that scenario in some prior years where it did not wash out  with room and board expenses since she lives at home to get the AOC.

If the credit is up 2K ...we.made less than 160K and tuition paid from the 529 plan for 2022 was the 13k to finish up the 4 year school and 4k to start grad school..how does turbontax confuse that!

[Hal_Al]

" I did not want to draw attention by leaving it out."  

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. The same amount of attention is drawn, whether you enter it or not.

You can still claim room & board, against the 1099-Q, even when the student lives at home. But you are limited to the lesser of your actual costs or the school's "allowance for cost for attendance" (basically what on campus students pay for Room & Board). The student must be half time or more.