Can someone answer this 1099Q / 1098T question...it seems to be a common issue..that confuses all...PLESE HELP!!!

[confusedrf]

..

[confusedrf]

I should have not come back here!

Hal_al...if you are an accountant in PA I should make an appt!

Well...maybe I am thick but my  take away on all this is...

If your dependent is a commuter..lives at home...is lucky enough to have 529 dollars to cover the tuition balance after tuition minus scholarships and grants as reported on the 1098t  then by all means use it.  You will still get AOC due room and board living at home expenses which easily cover the 4k.

I guess the trick is whether or not to enter the 1099q.  If you do..TT may say you do not qualify for AOC...in which case you must somehow somewhere add that room and board expense to TT to try to get TT to show the credit...or simply delete the 1099q...TT will now show the credit...and if ever called into question...discuss the fact that the student lived at home at that point with the IRS.

Is that about the size of it?

[Hal_Al]

@confusedrf  -

Q. "Is that about the size of it?" 

A.  Yes.

@Funkhowser  -

Q.  Perhaps this all to complex for TT to correctly report.

A.  Yes. 

Q.  I think I need an accountant. 

A. Not really.  You appear to have done the math. You know you have sufficient expenses to cover the 1099-Q and claim the AOTC.  Stop trying to make TT do it your way.  Don't enter the 1099-Q. Do enter the 1098-T and claim the credit. Keep good records.

I personally have been "audited", by the IRS,  over the 1099-Q (even though I entered it all in TT).  It was a simple matter of showing them the school's billing statements to get it cleared up.

[confusedrf]

in my case though it would seem the expenses applied towards to 4K appear  nowhere on the school billing. I would have to convince them that the fact that I let my daughter stay home somehow equated to 4K+ in expenses...

do you think you're audit was  due to the fact that you did not show  the q form... What were they questioning and how did you resolve it

[Hal_Al]

One user has reported receiving a CP2000 letter, from the IRS,  on 529 distributions, demanding tax.  He replied that his child was in college and the distributions were for qualified expenses, which he listed, but he did not provide receipts.. He  later received a notice saying he was in the clear.

[jlar]

"I would have to convince them that the fact that I let my daughter stay home somehow equated to 4K+ in expenses..."

Hi @confusedrf ,  been struggling with the same question. Similar situation with slightly different numbers.

Did you end up filing with or without the 1090-Q? Seems like a lot of advice here to not include it at all...and just save the records and submit details if there is an inquiry letter.

I found a way to enter the adjusted qualified expenses, including computed 'live at home' expenses (less than the College's COA guidance) directly into the 1099Q form (using 'override') to zero out any 529 axes or penalties.

I am convinced that using a calculated Room & Board even when commuting is legit !

But, it seems to me that If we can legitimately claim this then why not enter it into TurboTax (rather than ignore the 1099Q). Is my method of entering it into the forms directly legit? I don't know...it's all in this post (for someone else to trip over): 

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-american-opportunity-tax-cred...

TurboTax clearly cannot handle this from an 'interview'/walk-through perspective.

So did you file or give in and go to an accountant ?

Still trying to decide here whether to file with or without the 1099Q. That is the question! @Hal_Al is awesome and has provided a consistent message on this to many folks ("Just don't file the 1099Q").  I'm just wondering what others have actually DONE. I don't want any letters from the IRS (to my daughter).

[confusedrf]

Good timing. We had to go to an accounting firm  for my mother-in-law... That's another story but... While there  I talked about the 1099q,

1097t , the fact that my daughter commutes and if my 1099t payments - scholarships - 529 payments equals 0 if there was some way I could still get the AOC credit.... ie can I show $4,000 worth of expenses... Be at paying for her food or her living at home etc.

He chuckled and said he does not believe so. 

He could be wrong I don't know but  I'm not convinced it's a definitive yes or no either way... perhaps someone should call the IRS.

For this year it's not an issue.I have $4,000 in loan expenses. Next year... well time will tell.. I plan on using just the 529 next year and no longer taking out any loans so it will be interesting to see what happens.

I reallyw wisht were defensive answer to this.

The accountant also suggested it would be best to file the 1099 q. I agree it would be nice if TurboTax could collect all the information I e information from the 1099-q information on books I purchased outside of that information on a course she took at the community college in the books I bought for that etc etc. It would be nice if TurboTax could collect that either presented to the government or create an ice sheet for me to have for my records but for now I will just staple everything together and put it in a folder because again I'm not 100% sure where to do that how to get to it and again if the whole room and board thing is even possibilty.

it's late I'm a little weary eyed... I hope this post came out okay because this app certainly leaves a lot be desired.

[confusedrf]

well I just read my post and it's full of grammatical errors sorry about that. from now on I'm not using the app in my phone I'll just reply on my computer again sorry just keep hurting the good guys

[Hal_Al]

From ITS Pub 970 (page 58 Qualified expenses for QTP)

"3. Expenses for room and board must be incurred by
students who are enrolled at least half-time (defined
below).
The expense for room and board qualifies only to
the extent that it isn't more than the greater of the following two amounts.
a. The allowance for room and board, as determined
by the school, that was included in the cost of attendance (for federal financial aid purposes) for a
particular academic period and living arrangement
of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the school.
You may need to contact the eligible educational institution for qualified room and board costs.
4. The purchase of computer or peripheral equipment,
computer software, or Internet access and related
services if it's to be used primarily by the beneficiary
during any of the years the beneficiary is enrolled at
an eligible postsecondary school. (This doesn't include expenses for computer software for sports,
games, or hobbies unless the software is predominantly educational in nature.)"

additional reference:

https://thecollegeinvestor.com/18450/qualified-expenses-529-plan/

[NCperson]

what do you mean you have "Loan expenses" - are those 'qualified expenses"

[confusedrf]

I appreciate the reference quoted. I believe it's the second time it was quoted. It sounds promising however to my untrained eye I saw other areas where room and board was mentioned and sounded like it was not to be used as an expense. Loans yes...even if in the dependents name; I think everyone agrees on that.

The trouble is  next year I won't be taking loans.  HOWEVER....

if I am right the college seems to report the loans in the calendar tax year they are used....So year one (Fa18/Sp19) she had $5500 fed unsub loan.  I believe only $$2750 showed in my 1098T payments when I tried to tie out that number in tax year 2018.  For Fa19/Sp20 she got a $6500 fed unsub loan. In similar fashion, I think for tax year 2019 the $2750 from last year and half of the $6500 ($3250) from this year was included in the 1098T payments. So...I am thinking MAYBE next year (tax year 2021) my 1098T will be the usual sum of scholarships, loans(recall I am NOT taking one for Fa20/Sp21 but I think $3250 from the prior year will show), plus my 529 payment which in reality is the balance of their tuition fees - scholarships - 529 payments.  So if I look at the 1098T payments next year, it might actually be higher than the 'tuition bill' I received from the school but the overall payments less scholarships less 1099Q payments will be $3250 which would get me most of the AOC; especially if I can figure out how to add in the books I pay out of pocket. If you follow all that you likely have a headache!  Is that possible?    LOL.

Year 4 regardless...unless something more definitive on the room and board comes to light....likely won't yield me the AOC...unless I just do not enter the 1099Q and take my chances....I have never been that sort of guy tho! 

Bottom line, TT really should prompt for Room And Board ask if the student lived at home, had food expenses etc. and act accordingly. They do not so I perhaps its truly not an expense to be applied to the $4K ..or perhaps TT doesn't even understand the rules.

[jlar]

Link from today 2/26/2020 stating the number 1 red flag for getting an audit or inquiry letter is omitting a form (like the 1099Q)!

https://www.thestreet.com/personal-finance/taxes/red-flags-that-trigger-an-irs-audit?puc=yahoo&cm_ve...

So how can this be the best advice?

TurboTax does not ask enough questions about this and leaves us guessing what to do...or just pay excessive income tax and/or penalties. 

However, if you look at the 1099-Q form in TurboTax (FORM MODE) you can see specific lines to enter amounts to offset the income that TT leave stranded on our kids returns: 

Form 1099-Q, next to last section, section "Qualified Tuition Program (QTP) Computation of Taxable Distribution", line 2c (column 1 and 2)- "Adjusted Qualified Higher Education Expenses Applied".

This looks like just the place the IRS intended to put amounts in to offset the income tax and penalty. The section after that, "Distributions Not Subject to Additional 10% Tax" provides further cells to enter amounts to reduce the penalty ...including line 2e "Included only because qualified expenses were taken into account in determining American Opportunity or lifetime learning credit" (this is the 'exception' you sometimes hear about).

And wait  - after entering amounts on lines 2c as above I JUST NOTICED that TurboTax actually entered the CORRECT AMOUNT for me on on line 2e (after I added a manual override in 2c for my 'qualified expenses').

So what is 'Qualified Higher Education Expense"?

There have been many posts on this. Does it include Room and Board when living at home?

Consider this... one household has a 'Magic College Room and Board jar' on the shelf. The parent told the student, "Put $500 per month cash in this jar to cover your Room and Board while living here to attend college". And then added, "I trust you so I won't have to check every month. I will use this money to pay for the space I could rent out, the utilities you use, the food you eat, etc". The parent then concluded, "And of course if you or anyone else in the family needs money for anything they are free to take money out and use it as needed". At the end of the year, the parent checked and there was no money in the jar. However, the parent kept a nice spreadsheet tracking these payments from their child. One parent used $500 per month for 9 months, totaling $4500 for the school year - more than enough to offset the deduction for the AOTC qualification on the parents return! So you can see in this case, the student CLEARLY had Room and Board expenses, even though they are not reflected on any form!

Note: Use the COA (Cost of Attendance) from the colleges website for guidance on appropriate amounts for Commuter Room and Board - they should supply a 'resident' and 'commuter' cost estimate.

To me, 'loan payments' seem irrelevant. You INCUR expenses or you don't. When you 'repay' the loan is your business (could be over many years). 

Here is what I used to derive 'Qualified Expenses':

1098-T Net Tuition Expense (Box 1- Box5)

Less AOTC used on parent form (-4000) *avoids 'double dipping'

Plus Books and Supplies cost

Plus Calculated Room and Board (living at home)

==================================

Equals an amount GREATER than on the 1099-Q (Box 1)

Enter Calculated Qualified Expenses on 1099-Q line 2c column 1 & 2 (as above).

[confusedrf]

1) I enter the 1099Q.  Do I get all my other expenses in?  Probably not since the software really does not direct me to it.  I'll look into the form area you describe however there is no excuse for this.  Things count or they do not. TT should prompt you. I may try a different product next year.  I may even buy HR Block or something this year just to see they handle it. For now. I am filing.

2) While not all my expenses get in(see #1), I believe there is enough there without books and the questionable home room and board.  Am I wrong in assuming that if you don't overdraw your 529 (say to go to Disney!) AND you have/your dependent has loans in excess of $4k...you are good to go?  That is my situation tthis year and last; freshman/sophomore years... and MAYBE junior year.  Senior year is where I'd need the room and board. 

RE:

Consider this... one household has a 'Magic College Room and Board jar' on the shelf. The parent told the student, "Put $500 per month cash in this jar to cover your Room and Board while living here to attend college". And then added, "I trust you so I won't have to check every month. I will use this money to pay for the space I could rent out, the utilities you use, the food you eat, etc". The parent then concluded, "And of course if you or anyone else in the family needs money for anything they are free to take money out and use it as needed". At the end of the year, the parent checked and there was no money in the jar. However, the parent kept a nice spreadsheet tracking these payments from their child. One parent used $500 per month for 9 months, totaling $4500 for the school year - more than enough to offset the deduction for the AOTC qualification on the parents return! So you can see in this case, the student CLEARLY had Room and Board expenses, even though they are not reflected on any form!

Again, I don't know. I mean we obviously have expense. If not in school they'd be working and hopefully in an apartment!  BUT...I can also see the IRS questioning mom's magic cookie jar...and asking how  Donnie Jr managed to pay $500 a month when  their W2 shows they only made $2800 for the year.

This seems such basic stuff.  Why don't we see any response for TT in these questions.   They need to do better.

I am not sure I follow your math on getting the $4k.  My thoughts are this...maybe they are wrong:

1) Take 1098-T Box 1 and subtract Box 5. Example: Box 1 payments = $40K. Box 5 scholarships = $22K.  Balance is $18K.

2) Subtract 1099Q Box 1.  Example 1099Q - Box 1 shows $11K .  Subtract $11K from the $18K in step 1. You have $7k. FYI, The $7K in payments might be cash out of packet remitted to college or loans the family or dependent took out - Example - many kids get Federal Unsubsidized loans.

3) If Step 2 is more than $4k you get the credit. 

Am I wrong?

4) If you are close to the $4K, Do you have additional expenses likely not captured by TT because of the poor interview process:

Ex: Books

Ex: Courses at other institutions paid out of pocket.

.

.

. and the questionable room and board!

[NCperson]

@confusedrf @jlar - I agree with @jlar approach and math.  

$4,000 of expenses yields the $2500 AOC credit - look at form 8863 and you'll see how $4000 drives $2500.  That has to be calculated BEFORE dealing with the 1099Q.

On the 1099Q, the remaining 'qualified higher educational  expenses' need to exceed the amount of the distribution for the earnings in Box 2 to be tax-free.

if you look up IRS publication 970, on page 58 (left side), it discusses what expenses qualify and as it relates to Room and Board, it states: 

3. Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). The expense for room and board qualifies only to the extent that it isn't more than the greater of the following two amounts.
a. The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
b. The actual amount charged if the student is residing in housing owned or operated by the school.You may need to contact the eligible educational institution for qualified room and board costs. '

So the statement in bold MAY BE how the student who lives at home can use room and board to cover the distribution of the 1099Q.  I say MAY BE because the opening sentence does say "INCURRED".  Personally, I don't agree that this is viable, but I am just one person.   

What it says to me is 'actual expenses', not to exceed the greater of what the school said it would cost or what they actually charged.  So, for example,  I stay in a 4 star hotel for the semester, i could not cover all that expense with the 1099Q distribution - rather, I am limited to what the school said it would cost (paragraph a). 

[confusedrf]

I am not sure my math is any different but let me know ....You cannot overdraw your 529. Th 529 does not count towards expenses. The difference between Total Payments less scholarships less 529 payments must be $4k or more.  No?

Issues might be that you have made payments NOT captured on the T form..books or tuition paid when daughter messes up and has to take a course over the summer at a community college instead of her main college!!!

I am just not convinced on the room and board. It might look suspicious that you just start reporting the r&b expenses the year you happen to need it!  I guess if you report it all along, your dependent shows enough on his/her filing to cover to $4k you charge, you have them right you a check each month, if you give the money back but it does not go into her account bla bla bla..maybe you can convince them its legit. In these cases, my guess is more people get lucky by not filing the Q than those audited after suddenly putting in the the r/b.

Me, I want what I am entitled too without gaming the system.

Now, has anyone submitted their stuff electronically via TT? How do we know they are sending the Q info anyway!  When I ask it to 'print' ALL forms..I see stuff...but when I ask it print 'Forms for filing' I do not see it.  I noticed that last night!