Coverell ESA for Room and Board

[dhj96123]

I'm working on a return for a friend and need some help with education deductions.  Her daughter received scholarships in the amount of $12,450 and tuition and fees totaled $11,004.  She used a coverdell esa to pay for room and board off campus (rent for apartment).  She withdrew $12,027 from the coverdell.  There were no earnings or basis listed on the 1099Q.  FMV of $8,600 was given.  Room and board based on university cost of attendance are $10,696.  I entered the 1099Q and 1098T but turbo tax did not go a screen to enter the room and board amounts.  I have searched the forum but can't find the specific answer.  Where do I enter room and and board.  Is this even deductible since the scholarships and coverdell withdrawal covered all expenses?  Thank you for any help you can give me.

[Carl]

Just go back to the very beginning of the Education section and work it through the way it is designed and intended to be used. If you do not work it through the way designed and intended, then changes are you will 'NOT" be asked for R&B expenses.

So if you just "work it through" again leaving the data that is already entered, you will be presented with screens asking if you paid R&B (to which you'll answer yes of course), and then you'll be asked for amounts.

After you finish entering those amounts, *DO* *NOT* *STOP*. Continue working through the education section the way it is designed to be used, all the way to the end of the education section. That is the only way to be absolutely certain the program will correctly "do the math" so that everything is properly accounted for.

[dhj96123]

I have tried that as well as completely deleting this section and reentering.  I still get the same result.  What am i doing wrong?

[Hal_Al]

To get the screen to enter Room & Board, answer yes when asked if you have book expenses.

[dhj96123]

I have done that and it doesn't go to the screen to add room and board.  It asks if room and board was paid by a grant/scholarship or student loan but that's not the case. 

[dhj96123]

I started a completely new return and went step by step in education deduction section and got the same result.  Turbo Tax says $237 is taxable to the student.  Is it possible Turbo Tax is not allowing me to enter room and board paid with coverdell since all tuition and fees were paid by scholarship and the coverdell covered the rent and food?  There was no out of pocket cost to the taxpayer.  FYI this is an 2018 return if that makes any difference.

[Hal_Al]

 "She withdrew $12,027 from the coverdell" .... "Room and board based on university cost of attendance are $10,696".  That would appear to mean that  $1331 (12027-10696 = 1331) of the distribution was non qualified.  A portion of that $1331 is taxable.   $237 as the  taxable amount sounds reasonable. 

Normally the taxable amount is box 2 of the 1099-Q divided by box 1 times the non qualified distribution.  Bot in your case (boxes 1 & 2 blank), the calculation is different.

[dhj96123]

So it sounds like it's calculated correctly and the room and board would not be allowable as a deduction.  Is that the way you see it?  I am also doing 2019 for her and getting the same result.  A small portion is taxable to the student and no education credit or allowable deduction.  Is that correct?

[Hal_Al]

Q.  So it sounds like it's calculated correctly?

A. Yes, probably.  We can verify that because you haven't provided your basis and earnings amounts. 

Q. and the room and board would not be allowable as a deduction?

A. Room and board are not qualified expenses for a deduction or credit.  Room and board are qualified expenses for an ESA or 529 plan distribution, and that was apparently taken into account in calculating the taxable amount. 

Q. I am also doing 2019 for her and getting the same result.  A small portion is taxable to the student?

A. Yes, if the 2019 numbers are about the same.

Q. No education credit or allowable deduction.  Is that correct?

A. Simple answer:  yes, since her scholarships exceed her qualified expenses (tuition, fees, and books and other course materials.  But, there is a loop hole available. 

The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his/her return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

[dhj96123]

Thank you for this.  The basis or earnings for the coverdell are not listed.  I was never able to get to the part of turbo tax to enter the room and board and see if it makes a difference.  When i entered "yes" for books and other materials, it only asked if room and board was paid by a grant or scholarship.  That answer is "no" but it never went to a screen to enter room and board at all.  Is there another way to get to that screen?  I went through the education section step by step.

[Hal_Al]

Deleted 

[Hal_Al]

Try this:

 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 Expenses".  That should give you the R&B box. 

"The basis or earnings for the coverdell are not listed". 

When TT sees that boxes 2 & 3, of the 1099-Q,  are blank, it will give you a screen to enter your basis and the value (FMV) on 12-31-19.  You get the basis* from your own records. That will allow it to calculate the taxable portion of the distribution. 

*Your basis is the amount you contributed over the years, less the basis  portion of previous distributions, if any.  If this is the first distribution, from the ESA, then the basis is  simply what you put in. 

[dhj96123]

I have tried several times (deleting student to even starting the entire return over) and NOWHERE in the education section do i get a "room and board" screen. I have tried everything you have suggested and don't know what else to do.

I do have the FMV and that has been entered.  It still shows no education credit (Lifetime Learning, American Opportunity) and no deduction for room and board. 

[Hal_Al]

"I do have the FMV and that has been entered.  It still shows no education credit (Lifetime Learning, American Opportunity) and no deduction for room and board". 

There is no relationship between ESA FMV and education credits.  The FMV, along with your basis, determines the taxable amount of the ESA distribution.

The room and board "deduction" will not  show anywhere, except the 1099-Q worksheet.  It is not a true "deduction".  The R&B expenses are just used in calculating the ESA taxability (on the 1099-Q worksheet).

I, too, had trouble getting to the R&B entry point. But, the Education expenses summary entry point did work:  "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 Expenses".