I'm filling out my son's tax return. He's a senior in college, still a dependent on my return, but he's got some earned income from a summer job, and a relatively small amount of dividend and capital gains income from an E-Trade account. His income is such that he gets a refund of all withheld taxes from his summer job, and no taxes owed on his investment income. So far, so good.
But...he's got a 1099-Q showing $37,000 in distributions from his 529 account, as well as a 1098-T from his college showing $25,000 in scholarship money and $45,000 in tuition payments. So, $45K in tuition minus $25K in scholarships leaves $20K in tuition. That $20K plus $15K for room and board plus another $2K for books and supplies adds up to $37K which should completely offset the 529 distributions. However, when I enter all the expenses, TT tells me he's not eligible for an education deduction or credit because either a) I can claim him as a dependent on my return, OR b) distributions exceed the education expenses (which they don't), OR c) there were no net qualified education expenses (which there were). I've started and re-started his return multiple times, and worked carefully through each Easy Step section, and always wind up owing taxes on that $37K in 529 distributions. What gives?
