Some clarification needed on 1099-Q entry

[praasppn]

I have received the ESA distribution form and that was fully used solely for a qualified tuition. My current understanding is that in such cases I do not have to enter this in TT.  Correct ? So, if I do not enter this ESA distribution, do I still enter the tuition expense in the next section ? If I enter there, I get some credit. My education expense is exactly the amount received from ESA, no more or no less. I hope this looks correct ? (I had similar issue last year also and I was hoping the TT questions would be clearer this year).

[PattiF · Accepted solution]

Yes, you are correct that you do not need to enter the 1099-Q ESA distribution in your taxes if it was all used for educational purposes. Here is a TurboTax article about 1099-Q distributions.

The ESA distribution was tax-free since it was used to cover all of your education expenses. You stated that the expense was exactly the amount of the education expenses. There is no amount left over to enter on the tuition expense screen.

[praasppn]

ok, thanks. I deleted the education expense that I had entered matching the ESA distribution amount.  So now that credit is also gone.

If you are accepting feedback, these screens definitely need more clarifications and be  clearer. I re-read the text again. But thanks anyway.

[Hal_Al]

@praasppn  said "So now that credit is also gone."  and "fully used solely for a qualified tuition". 

If your ESA distribution was totally covered by qualified expenses, you do not need to report the 1099-Q at all.  But. you are not required to designate all expenses for the 1099-Q.  You may use some of the tuition expenses to claim the tuition credit.  That may mean paying a little tax on the ESA distribution.  But the American Opportunity Credit is much more generous than the ESA earnings exclusion.

Furthermore, room and board (you must be half time or more) are qualified expenses for the ESA, which may free up some tuition for the credit.

[praasppn]

Thanks for this additional tip. Let me play with the numbers and see how it turns out.