"we have no room and board".
Not exactly true. Everybody's gotta eat and sleep. You may count room and board, when living off campus, even if living at home. Board is more straight forward, than room. But for students residing in off-campus housing, qualified room and board costs must be less than or equal to what is included in the college's cost of attendance (COA) allowance for room and board for the period.
Reference: https://www.savingforcollege.com/article/using-your-529-plan-to-pay-for-room-and-board
You only need to come up with $3590 of expenses to avoid tax on the 529 distribution. Board and books, and computer and software and internet should do it..
TurboTax can (theoretically) handle all this, but it's tricky. It's best to use a work around. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.
You have two simple workarounds. On your return, enter only the 1098-T and claim the AOTC. Do not enter the 1099-Q on anybody's return.
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) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip! 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, in case of an IRS inquiry.
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."
One user has reported receiving a CP2000 letter, from the IRS, on 529 distributions, demanding tax. He replied that his child was in college and the distributions were for qualified expenses, which he listed, but he did not provide receipts.. He later received a notice saying he was in the clear.
I also received a CP2000 letter, from the IRS, on 529 distributions. i provider them copies of the school's billing statements. I also received an all clear notice.
