1) you had expenses of $27,000
2) you had 529 distributions of $26,000 and $8,000
3) I am going to assume that Box 2 related to the $8,000 check was $2,000 and you will see why below (replace with the actual number when you walk through this post).
4) some of the 529 distribution will be taxable income since the distributions of $34,000 exceed the costs of $27,000 (but that doesn't mean there will be any tax to pay....keep reading)
5) Post the 1098-T in TT (dad's return). That consumes $7,000 of the expenses.
6) You will need to enter the 'qualified expenses" (room and board, books, computers, etc) when asked by TT. Presumably this represents $19,000 of the $20,000 of remaining expenses. (hold the thought on the last $1,000, I will get to that)
7) since dad took 529 distributions for $26,000 and the total expenses were also $26,000, (item 5 and item 6), NOTHING is taxable. In fact, as long as you keep good records on how you came to $26,000 of expenses, you don't have to key in the 1099Q into TT or any of the qualified expenses! Makes it all that much easier that way!
😎 Now we get to the son's 1099Q. That MUST be entered as there was a distribution of $8,000 and there is only $1,000 of expenses left to support it. So 7/8's of the distribution was not required to pay the college expenses. Therefore 7/8 of the $2,000 of Box 2 earnings are taxable. But since this is on your son's tax form, it may turn out that his total earnings are low enough that there is no tax to pay on the $1,750 ($2,000 * 7/8) of taxable income in any event.
make sense?
