Daughter not qualified for the American Opportunity tax credit??

[elyon]

I have 2 children in college.  My son qualified for the American Opportunity tax credit but my daughter did not.  It says the reason that she didn't qualify is because "Net qualified education expenses is zero."  What does that mean?  I entered in all of the information from her 1098-T.

[elyon]

it also shows that she doesn't qualify for the Lifetime Learning Credit or the Tuition and Fees Deduction.

[Hal_Al]

It usually means that box 5 of the 1098-T has a larger number than box 1.  Otherwise, you've entered something wrong.  In particular, be sure you didn't re-enter the box 5 amount at other scholarships. 

[elyon]

Actually, it turned out to be a dollar value issue.  After I played around with it for a while, I figured that out.

[Rick56]

I have the same problem.  One daughter qualifies and the other doesn't.  The one that doesn't has 21,618 in box 1 of th 1098T and 13,297 in box 5.  Where else would I look for something entered incorrectly?  Do I enter 1098Q's if the recipient is my daughter?

[MaryM428]

Delete the student who did not qualify and then go through adding her and entering her information again.  Enter the 1099-Q first and then the 1098-T.  You will pay tax on the 1098-Q but it is worth paying the tax if it allows you to claim the credit.   

[Rick56]

Thank you MaryM.  Do I enter 1099Q if my daughter is the recipient?

[JoannaB2]

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student, and 60% of the credit is non-refundable which is used to lower liability and the remaining 40% will be refunded on the return.

you may not claim AOTC credit for the tuition paid at higher educational institution; if your scholarship was more the tuition (difference may be taxable).

See, American Opportunity Credit.

[Rick56]

I think I know what the problem is.  In December 2020 we paid for her spring 2021 semester using our 529 savings.  That makes the 1099Q look like we took out more than what was eligible expenses for 2020.  How in the world do I fix that?

[Rick56]

Again the 1098T line 1 was $21,617.75 and line 5 was $13,296.93 so the scholarship was not more than the tuition.

[AmyC]

1099-Q distribution in Dec 2020 does go on the 2020 form. Box 1 minus qualified expenses becomes taxable income. Let's not forget room and board. That could take up the remainder of the amount. See 529 for Room and Board. The 1099-Q is only required to be reported for taxing income. If all of the distribution ends up being used for eligible expenses, then you do not have to enter the 1099-Q,

The 1098-T is filed for education credits or taxable scholarships. If the 529 covered all of the expenses, you would not need to file the 1098-T for education credit. You could just file the scholarship income. See Where do I enter scholarship income?

If there were any expenses left not covered by the 1099-Q and scholarships, then whoever claims the student, claims the credit. I am going to recommend you look at another of my answers for help.

@Rick56

[Hal_Al]

@Rick56  Why do you think your one daughter does NOT qualify?

[Rick56]

The December 2020 distribution from my 529 reported on my 1099Q will be qualified educational expense in tax year 2021 as that distribution paid the spring 2021 semester tuition.  So I am not required to enter any of the 1099Q information?  Doesn't the IRS get a copy and won't they be upset if it's not entered?

[Rick56]

Because Turbo Tax told me she didn't.

[Rick56]

@amy So I am not required to enter any of the 1099Q information?  Doesn't the IRS get a copy and won't they be upset if it's not entered?  There were several distributions from the 529 throughout the year.  The December 2020 distribution was just a portion of the line 1 gross distribution.  That part of line 1 will be eligible expenses for next year as it was for the spring 2021 tuition.  So again I ask, do I understand you correctly that I don't have to enter the 1099Q information if it's all eligible expenses?