tuition, 529 account and non dependent child

[jastrout]

My 22 year old daughter graduated from college in Dec 21, started a full time job but still lived at home.  She the went to grad school part time.  She was bad about watching tuition deadlines so I paid her tuition and then reimbursed that cost from her 529 account.  I am the owner with her as a beneficiary.  What to we do on her taxes?  She has the 1098 T from the school and I have the 1099 Q where I am the recipient of the funds.  I haven't been able to find any clear guidance.

[Hal_Al]

You can just not report the 1099-Q, at all, if your student-beneficiary (whether she is your dependent or not) 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." 

The next question is can she/should she claim a tuition credit on her return.  As a grad student, she is only eligible for the non refundable LLC (Lifetime Learning Credit) which is 20% of tuition paid (even if you paid it).  So, you may have to decide is it better if you pay a little tax on the 1099-Q, so she can claim the credit.  

Provide the following info for more specific help:

• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• Box 1 of the 1099-Q
• Box 2 of the 1099-Q
• Room & board paid. If student lives off campus, what is school's R&B charge. 
• Other qualified expenses not included in box 1 of the 1098-T. e.g. books and computer
• How much taxable income does the student have (or what is her calculated tax on line 16 of form 1040)
• Was grad school half time or more

[jastrout]

box 1 1098 22108.00

box 5 1098 0

1098 T is in her name

box 1 1099 21940.54

box 2 1099 9624.18

1099 Q is in my name

grad school half time

other educational expenses books 82.54

she lived at home

taxable income 27000 for my daughter

[Hal_Al]

Room & Board are allowable expenses for a 529 Distribution. You may use your actual cost or the school's ''allowance for attendance", which ever is lower.  My local state college has an allowance of $11,500/year.   Assuming her school is as little as 75% of that, the 529 distribution is tax free to you.  She does not need to claim the full $10,000 tuition to get the maximum LLC (In her case only about $1500, because of her income). 

For simplicity, just don't enter the 1099-Q on your return.  You know none of it is taxable. 

On her return, she enters  the 1098-T, exactly as received.  She does not need to make any adjustments for what you claim because there is already enough "left over", for her return.