TurboTax (TT) assumes that some of your tuition expenses are used to claim the tuition credit. You cannot "double dip".
Total qualified expenses
(including room & board) less amounts paid by scholarship less amounts used
to claim the Tuition credit equals the amount you can use to claim the earnings
exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including
room & board)
-$3000 paid by tax free scholarship
-$4000
used to claim the American Opportunity
credit
=$3000 Can be used against the 1099-Q (usually
on the student’s return)
Box
1
of the 1099-Q is $5000
Box
2
is $600
3000/5000=60% of the
earnings are tax free
60%x600= $360
You have $240 of taxable
income (600-360)
If you are ineligible, for the credit; Go through the
education section again. When you get to the screen that says “Here’s your
Education Summary”. Click edit next to
“Education Information”. When you get to the screen titled “Amount Used to
Calculate Education Deduction or Credit”, verify the amount you want to use or
change it.
Alternatively; 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.
