I am reading this a couple different ways with options on how to handle. You stated 529, scholarship, room and board, and tuition. The program will handle making the 1099-Q taxable - which is why you need to step in. At the minimum enter room and board with the Q. I would go a different route.
How things are assigned makes all the difference.
Example:
box 1 tuition is $20,000
box 5 scholarship is $15,000
529 is $20,000
Room and board $10,000
First, determine if you qualify for the AOTC. The phaseout for AOTC is a modified AGI of:
- $80,000-$90,000 or
- $160,000- $180,000 MFJ
If you qualify to claim education credit, your goal is $4,000 spent on tuition for maximum credit. The IRS allows juggling numbers - prefer to do that after eliminating the Q when possible.
Second, try to eliminate the 1099-Q.
In the example above, the Q covers room and board plus $10,000 of tuition. It doesn't need to be filed. Tuck it in tax folder. 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.
Third, juggle numbers as needed. The IRS encourages this in Pub 970.
The Q is gone along with $10,000 of tuition which leaves $10,000 plus books, etc to be covered by scholarship money.
Options are:
- Scholarship $15,000 - $10,000 tuition - books, etc = taxable income to student.
- Scholarship $15,000 - $6,000 tuition - books, etc = taxable income to student with a bonus of full AOTC credit for parent claiming the student.
- Any amount between $6,000 and $10,000 for tuition and varied AOTC credit and scholarship income.
Things to remember are:
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
