Turbotax student information worksheet applying AOC incorrectly

[JMuldoon]

I've made withdrawals from a 529 plan that exactly match my qualified educational expenses, but TurboTax is showing taxes due from the 529 withdrawal.  When I looks at the calculation in the student worksheet, it appears that Turbotax is applying a $10,000 credit on line 17 of the worksheet to account for the American Opportunity Credit, which I don't qualify for due to my income level, and TurboTax has indicated that I don't qualify for the AOC in messages that I get when completing the education expense section.  I suspect that there may be a software error in the student worksheet.  Can I just manually update the entry in the student worksheet to correct this, or is there a workaround?  Appreciate any help on this!

[Hal_Al]

In the education interview, you should reach a screen titled "Choosing a larger education Credit". Verify that TT has entered $10,000 (the amount needed to get the maximum LLC) in the box on that page. You can change it, if needed. In your case, you want to change it to 0. 

If you don't encounter that screen; 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 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.

PLAN C.  On the Student Information Worksheet (abbreviated Student Info Wk on the forms list), go to part VI and change line 17 (“Used for credit”) to 4000. Make the change in the first column.  That will automatically change the other columns.

[JMuldoon]

Option 2 worked!  Thanks so much for the help.

[eajcrawford]

I'm having a similar problem, or maybe exactly the same. My husband attended college and we did a 529 disbursement to cover it. TT kept telling me that we did not qualify for an education credit because of our income and then I could tell that it added to our total tax owed.  I'm confused by the instructions you were given to fix it though!

[eajcrawford]

What does LLC mean in your response?

I'm having similar problem and I'm confused on how you are explaining to fix it.

[Hal_Al]

@eajcrawford LLC = Lifetime Learning Credit.

Since you know you don't qualify for a credit, and you have sufficient expenses for the 529  distribution, there is no reason to enter the 1099-Q.

You can just not report the 1099-Q, at all, if your student-beneficiary 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." 

If you still want to enter it; Try the three steps described above. If that doesn't work, delete the 1098-Q and the 1098-T and re-enter. Enter the 1099-Q first

[c20025]

@Hal_Al , very nicely explained.   I had this problem as well and spent about two hours trying to fix it myself before coming upon your posts.  While your plans A, B, and C didn't work for me deleting both forms and starting over did.

The only change I made was to manually type in the 1098-T data in lieu of uploading via photo.  I wonder if there could be a bug when using this method.

Thumbs up to @Hal_AI, thumbs down to turbotax opacity.

[3msomervell]

I too have stumbled upon this issue.   In your "Plan C" explanation, you suggested 'go to part VI and change line 17 (“Used for credit”) to 4000.'  Yet in the first part of your suggestion where we might use the interview to make the fix, you mention changing the 10k credit to 0.  I would think the Plan C option would also be to change to 0 as well.  Where did the 4000 come from, and why is it not 0?

[Hal_Al]

Q. Where did the $4000 come from, and why is it not 0?

A.  $4000 is the amount of tuition needed to claim the maximum American Opportunity Credit (AOC $2500).  It takes $10,000 of tuition to get the maximum Lifetime Learning Credit (LLC $2000).

The AOC is only available to undergrads, so it is the most commonly claimed credit. So, more users need to change the $10,000 to $4000 than need to change it to 0 (because they don't qualify at all).

[3msomervell]

Ahh... got it.  Thanks for the clarifying detail.