TurboTax error - saying my child doesn't qualify for AOTC this year

[LB4]

Looks like many others are having issues with the education tax credits section this year. I'm using the online version and there seems to be a real problem with how TurboTax is determining whether a dependent student qualifies for the AOTC.

My scenario - dependent son is in his second year of college. We claimed the AOTC for him last year via TT with no issues. Last year, his 1098T from the school showed ~$37k in payments received for qualified tuition & expenses, and $21k in scholarships. So, we had ~$16k in expenses that could be used to claim the AOTC.

This year, similar numbers on his 1098T, so ~16k in qualified expenses again. As I entered his data on this year's form, TT at first told me he was eligible to claim the credit and gave me the amount of the credit. But as I got toward the end and was reviewing my federal numbers, something had changed and I was no longer receiving the AOTC! So I went back through the deductions & credits section again and reviewed all the numbers, but when I got to the end of my son's entries it now said he did not qualify, because: 

• "Somebody else can claim [child] as a dependent on their return"
• "There were no net qualified education expenses"

This is bizarre. Of course someone else can claim him as a dependent on their return -- me! That's what I'm trying to do, so I can claim the AOTC for him.

As for the second bullet -- this also makes no sense. His net qualified education expenses are ~$16k again, like last year. Why is he now not qualifying for AOTC? What made TurboTax first say he qualified, only to change its mind when I got to the end of the federal filing process?

The only thing I can think of is that perhaps TurboTax is doing something weird with our 529 distributions. The amount on box 1 of our 1099-Q is higher than his net qualified expenses -- but that's because we're using that money to pay for non-qualified expenses (room and board) and what's leftover to pay for his tuition after the scholarship and paying $4000 of tuition with non-529 funds so we can claim the AOTC without "double-dipping" between AOTC and 529. We had this same situation last year and there was no problem, TurboTax said he qualified for the AOTC. So I'm not sure what's wrong this year. Any ideas?

[Hal_Al]

@LB4  said:

The only thing I can think of is that perhaps TurboTax is doing something weird with our 529 distributions.

Yes, that's it.  The 1099-Q is currently broke (you can't enter room & board expenses). A fix was expected before the weekend, but that didn't happen.  You'll have to wait for the next up date.

Or, if you know that none of your 529 distribution is taxable:

The 1099-Q is  only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you probably can. 

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 don’t need it). 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.

References:

1. 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." 
2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
3. "IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc; then, you do not need to enter the form."