Scenario:
Have daughter who is a full time student in college.
She can be claimed by me as a dependent (she does not provide 1/2 of her support).
She has earnings of approx. $12,000.
My income exceeds the AOTC cap- so I'm ineligible. Besides, 529 fund $ were used to pay for qualified education expenses (QEE).
The following 1099-Q (rounded $) were generated by my 529 Plan (I'm owner- she is beneficiary):
> $20,000 (pd. to college -and issued in my daughter's name).
> $14,000 issued to me (which was used to pay for off campus room, board and books).
She also received Form 1098-T from the school indicating $24,000 (Box 1-Amts paid) and $4,000 (Box 5-scholarships).
As read from other questions, navigating thru TT questionnaire and worksheets are complicated. (It says that her scholarships are taxable -and they are not). So here are my questions:
1. It seems that so long as I can justify my 1099-Q proceeds are justified by QEE, that no entries need to be made on either my or daughter's tax return- correct?
2. Would the 1099-Q issued in my name automatically trigger an inquiry by the IRS? Or should I dissuade an inquiry by providing the IRS with a supporting statement or worksheet? And if so, mechanically how do I do this in TT Premier Desktop?
And, a deeper dive...if you're up for it:
3. I understand that if student lives off campus, the avg. room and board charge published by the College can be used. What if off campus room and board was of higher cost?
a. Would IRS allow it? What about deposits made to secure the following year's lease?
b. If I completed the TT Smart worksheets, is the program sensitive enough to know that amount published for each school (would seem unlikely, right?)
4. For future years, if I don't actually claim daughter as a dependent ( I get no tax benefit from it, due to my income level), can she claim the AOTC as long as I don't use 529 funds for amounts claimed for AOTC?
Thank you so much in advance for taking the time to read and respond.
