529 and distribution in lieu of scholarship. TT calcs don't seem to add up.

[Hal_Al · Accepted solution]

  $27,166 of qualified Tuition expenses

+   2,800 Board

-   14,000 paid by tax free scholarship 

= 15,966 of expenses are available for the 529 distribution

$13, 583  Parent's Box 1 1099-Q

+   7, 235 Student's Box 1 1099-Q

$20,818    Total distribution

- 15,966

= 4852   Total  Non Qualified distributions

You want at least ~$1500 (2200-775 +88 -19) to go on the student's return to take advantage of his lower tax rate.  After that, it should be taxed at the parent’s rate regardless of which return it’s entered on*.

So, for simplicity, you should not enter your 1099-Q, at all, taking the attitude it’s all covered by qualified expenses.  For your son’s return, he has 15, 966 – 13,583 = 2383 of qualified expenses and 7235 – 2383 = $4852 non-qualified distribution. 

How to enter, in TT,  on his return:

Enter the 1099-Q, exactly as received.

Enter the 1098-T with $16,383 (14,000 + 2383)  in box 1 and $14,000 in box 5.  The scholarship must be shown for TT to calculate the penalty exception. Enter no other numbers (board/meals was used by you).

Anticipated result: 4852/7235 =67% of the earnings are taxable. 0.67 x 4164  =2792 taxable income which will be entered on line 8 of Schedule 1.

*But, taxes are complicated and ideally you would try several scenarios to see which way comes out best. But that’s cumbersome in do-it-yourself software.

[jeffschmitz]

Thank you so much for doing that.  I'll need to read it a couple more times to digest it all and see how it pans out in TT.  Off the top of my head I remember trying to enter the 1098-T on his return once, but since he's a dependent TT was making it difficult (impossible?) to enter.

[Hal_Al]

One more thing: TT might (probably not) try to assign expenses to the tuition credit (assuming the parent claimed it).

If a bigger amount is taxed, Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it (to 0, in your case).

You might reach that screen earlier in the interview (or a screen telling you that 0 was used for the credit).

[jeffschmitz]

Entering as specified (see below) on my son's return, TT is listing 100% of the 1099-Q's earnings ($8006) on Schedule 1, Line 8.  The only other things entered in his return are the $885 in investment/div income.

Enter the 1099-Q, exactly as received.

Enter the 1098-T with $16,383 (14,000 + 2383)  in box 1 and $14,000 in box 5.  The scholarship must be shown for TT to calculate the penalty exception. Enter no other numbers (board/meals was used by you).

[jeffschmitz]

Just read your subsequent post, will try doing that.

[jeffschmitz]

The“Amount Used to Calculate Education Deduction or Credit”, was showing 2,383.  After zeroing it out, Schedule 1 Line 8 went to $6602.

[Hal_Al]

It sounds like you entered YOUR 1099-Q (box2 8006) instead of his (box2  $4164). 

[jeffschmitz]

And you are correct sir.  Sorry about that, too many 1099-X's floating around.  

After entering it's now coming out to $2792 as predicted. For posterity, I do think you have  to do the second part you suggested to get it all to come out.

I can't thank you enough for this, and hopefully this helps a few others seeking answers.