- Box 1 of the 1099-Q RESPONSE: her grandparents received this, they were the ones who funded the account
Even though the grandparents 529 money was used, the family is still allowed to allocate educational expenses, for the best effect . So you get to decide whether the tuition will be allocated to the grandparent tax return or the student's. So, we still need the numbers (boxes 1 &2) from the 1099-Q. What is the grandparent's tax rate?
- . RESPONSE: this is a local university, where the vast majority of students live off campus
You still need the school's "allowance" for room & board . You are allowed to "count" that for tax purposes.
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers RESPONSE: negligible
With your other numbers, the amount for books could result in a 100% credit.
- How much taxable income does the student have, from what sources RESPONSE: she worked part time
We need to know her actual income to help decide where to allocate the tuition (and books) expense and whether to include some of the scholarship as taxable (to free up tuition for the credit or 529 distribution)
- Is the student the parent's dependent. RESPONSE: no
Why not? There is a rule that says IF somebody else CAN claim her as a dependent, she is not allowed to claim herself. If she has sufficient income (usually more than $14,600), she can & should still file taxes. In TurboTax, she indicates that somebody else can claim her as a dependent, at the personal information section. TT will check that box on form 1040. You cannot forego claiming a dependent to allow her to get the $1000 refundable education credit (see more below).
- Are you trying to claim the tuition credit (are you eligible, your income is not too high)? RESPONSE: she would like to claim it
That's usually not allowed. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit (AOC) if he supports himself by working. You (the student) cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit. You cannot claim the (up to) $1000 refundable credit if you are, or can be, claimed as a dependent by someone else.
If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that he can be claimed as a dependent, on his return. This is worth up to $2500 (AOC shifts to all non refundable)
