Q. Can you apply a single1098-T to both a Parent's return (to qualify for AOTC) and a Dependent's return (to reduce interest on their 529 withdrawal)?
A. Yes.
Q. Can I apply the remainder of the qualified expenditures (beyond the first $4,000 so, no double dipping) to my dependent’s return? This would offset the interest from their 529 that’s reported on their 1099-Q?
A. Yes. The 1098-T is only informational document. The numbers on it may be allocated, as needed, on either, or both tax returns.
The 1099-Q is also only an informational document.
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), books, other course materials and a required computer, 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. As you know, you cannot "double dip".
References:
- 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."
- 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”.
