When 529 Dollars are used for High School and College, I think TurboTax has a problem

[blombebc]

I have a daughter who is now a college freshman, and went to a private high school for the first part of 2023. I used 529 dollars to pay for both. Someone please correct me if I'm wrong, but I believe there is a $10000 annual limit on 529 dollars used for K-12 expenses, but there is no such limit for secondary education.  Is that accurate?

If so I believe TurboTax has a problem when I check both checkboxes for "Attended high school in 2023" and "Attended college/vocational school in 2023".  I have roughly $15K in 529 dollars I've used, and TurboTax looks to be enforcing the 10K cap on these dollars due to the K-12 limitation. When both of these boxes are checked TT should breakout the K-12 expense and secondary expense.

Due to this (what appears to be a) bug TT is telling me I need to pay tax on the roughly $5K over the $10K limit, when in fact all $15K should be allowed.

Does someone know how I can work around this?  I started looking at some other posts here, and read a few, so if I missed someone else posting this I apologize.  I'll continue searching after I post this.

Thanks.

[Hal_Al]

The simple solution is just don't 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! 

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”.

Q. I believe there is a $10000 annual limit on 529 dollars used for K-12 expenses, but there is no such limit for secondary education.  Is that accurate?

A. Yes.

Q. Does someone know how I can work around this? 

A. It's an unusual situation and probably takes a workaround. I would think it's just a matter of entering two different 1099-Qs and then answering yes, in the expenses section,  when asked if the student attended another school.  But, I haven't actually tried it.

Here's workaround that I have tried (but not in your exact situation):

Instead of entering the educational expenses in the education expenses section, enter it in the 1099-Q section of TT. The workaround is: when asked who is the student, check "someone else not listed here" (Lying to TurboTax to get it to do what you want does not constitute lying to the IRS). On the next screen, enter the real student's name.  This will eventually give you one simple screen to enter all expenses. Press Done at the 1099-Q summary screen, to get there. Enter the high school tuition and answer that the student attended H.S. 

Then enter a 2nd 1099-Q and do the same thing, entering the college expenses. 

If the plan only sent one 1099-Q (a mistake on their part), then you need to manually  break it down into two 1099-Qs. 

[blombebc]

Thanks a lot Hal_AI for the info and the potential workaround.  I'll probably take the easy way and just not report it, but I may take a look at the workaround just in case.  Seems reasonable and sounds like it could work.

Thanks again!