I originally posted this under someone else's question in an attempt to keep similar questions together. I believe that was a mistake as I got answers that were unrelated. So I am reporting this question on a separate thread.
I qualify for the AOTC and also took a distribution from an ESA. What should happen is the qualified education expenses should apply to the credit first and then the ESA distribution. The example in chapter 7 on p54 of publication 970 under the subheading Coordination with American Opportunity and Lifetime Learning Credits illustrates this. Here is my example with the way I believe the education credit should be calculated:
Total Qualifying Education Expenses: 8829.46
Room and Board (Commuter) 0.00
Scholarships <3710.00>
Adjusted Qualifying Education Expenses: 5119.46
Expenses Applied to AOTC <4000.00>
Expenses Available for ESA Distribution 1119.46
ESA Distribution 3343.00
ESA Distribution subject to Tax 2223.54 ignoring the tax basis for simplicity
However, TurboTax is calculating it this way:
Total Qualifying Education Expenses: 8829.46
Scholarships <3710.00>
Adjusted Qualifying Education Expenses: 5119.46
ESA Distribution < 3343.00>
Education Expenses available to AOTC 1776.46
Now perhaps I am missing an entry somewhere (and I have searched for this entry) that tells TurboTax how much of the ESA Distribution to use and how much is taxable. It also appears that there was a change in TurboTax because I get this screen: We'll make this entry zero that's no longer needed. Earlier you told us to treat $0 as taxable education distribution in order to claim a larger education tax credit or deduction. However, it's no longer beneficial for any amount to be treated as a taxable distribution and used for an education credit or deduction, so we will make this entry zero. I am not sure what this means or why TurboTax is telling me this.
I have the desktop version of the Home and Business version using Windows 10 OS. The version number is [phone number removed]
Can someone please help me?
