Why are college expenses not offsetting from 529 and where do you enter expenses in addition to the 1099-T?

[ericlipkind]

I entered 1099-T for college expenses & had a 529 distribution.I get a message the expenses are not deductible because Modified AGI is > $180K. Shouldn't the college expenses offset from the distribution from the 529?  The way it is showing now is that the earnings portion of the 529 distribution is taxable income.  There was also no place to enter additional expenses that were not on the 1099-T.  

[KrisD]

You need to get the the screen that allocated the expenses to the credit. 

In TurboTax Home & Business Desktop, please Click Personal and then Click Deductions & Credits

(click "I'll choose what I work on" if needed)

Scroll down to "Education" 

Click Update or Start next to Expenses and Scholarships 

Click Edit next to the student's name 

     Since you already entered the 1098-T-

      On the "Here's Your Education Summary" screen-

          Click "Other Education Expenses (for all schools)" to enter additional expenses, such as books and                        supplies, if you entered a 1099-Q, expenses for room and board are entered here

          Click "Scholarships/Grants (for all schools)" to enter any ADDITIONAL assistance not listed on the 1098-T or                1099-Q 

Click Edit next to  "Education Information" (scroll down to see this if necessary)  and answer ALL the interview questions

The last screen will show the allocation of expenses for a credit. Enter Zero (0) if you are not eligible for a credit. 

The program may have defaulted to allocating 10,000 if the 1098-T was entered first

Please change this allocation amount, in your case change it to Zero(0) since you are not eligible to take a credit. 

Click Continue

The distribution should no longer show as taxable. 

As a side note, if you do not get any tax break by claiming the student, and the student has taxable income, you do have the option of allowing the student to claim the non-refundable portion of the credit if eligible.

To do this, neither you nor the student claims the student's exemption and the student enters the 1098-T.

CLICK HERE for IRS Pub 970, Tax Benefits for Education 

[ericlipkind]

Thanks but how do you know that I am not eligible for a credit?

[KrisD]

You told me that in your question.

[KrisD]

If you are eligible for the American Opportunity Tax Credit, change the allocation to 4000, and click Maximize  My Education Tax Break, or a different amount, whatever you want.

[KrisD]

American Opportunity Tax Credit For 2018, the amount of the American Opportunity Tax Credit is phased out if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 Single ($160,000 - $180,000)or more MFJ

Lifetime learning credit.   “For 2018, the amount of your lifetime learning credit is gradually reduced (phased out) if your MAGI is between $57,000 and $67,000 ($114,000 and $134,000 if you file a joint return).