Thanks for the response. I am not entirely sure you understood the situation. Let me try and re-explain. I apologize if my sequencing of events is messed up, I have been through this several times now in TT and am going by memory now.
I had entered my child's 1098-T information including tuition and a small scholarship (about $3500). Additionally, I entered other expenses such as books, room and board, and software costs - all eligible expenses for the 529 plan.
I entered the information from the 1099-Q. Within TT, after the summary information for the 1099-Q, when you continue, there is a prompt under the heading "Principal or interest payments on qualified education loans" which asks, "Did you make any payments on qualified education loans of the designated beneficiary?". I answered YES to this prompt and then subsequently entered the "Principal Paid" and "Interest Paid" amounts and indicted I would NOT be deducting the interest as an expense because the loan is in my child's name, not ours. The total amount of principal and interest paid was not to exceed $10,000.
As a side note, when I added additional educational expenses, I was a little puzzled by the additional prompt at the bottom of the education expenses screen "Did you take a tax free distribution from a 529 plan for payments towards a qualified education loan?". Isn't this a repeat of what I already answered earlier? I tried yes and no and it didn't make a difference.
Anyway, the sum of the tuition + books, expenses, room and board, and software was less than the 529 distribution as I stated earlier. However, the 2019 tax law changes allow payment of up to $10,000 in educational loans with 529 distributions tax free. When I add on the amount I paid towards qualified student loan principal and interest the sum of all the parts (tuition, books, room and board, loans) was greater than the 529 distribution. So, there shouldn't have been any extra distributions for which I was taxed and/or penalized.
This whole thing has me very confused at this point. Even more so when I went in and removed the information pertaining to educational loans paid (i.e. principal + interest) + noticed my tax amount owned went DOWN. On the schedule 1 I also noticed that 1/2 the scholarship amount was now excluded from taxable income, and was applied towards the 529 distribution amount. Probably lost you there though.
Anyway, it seems that what should be a benefit to me, using the 529 funds to pay off the student loan, is causing me to incur more taxes than simply leaving it off, which is opposite of what I would have expected.
I know that without knowing my exact tax situation, which I won't post online, it is hard for you to follow along, but if you can provide assistance, that would be great.
