“Some expenses were paid from 529 to me (parent). These show up on my 1099-Q. I will ignore that for my return as all the expenses are qualified”
Yes, you can do that if you know all the expenses are qualified AND your son is not using any of the same expenses on his return.
TurboTax is capable of calculating the taxable amount of the 1099-Q and it sounds like you are on the right track. Yes, enter in all expenses even if paid for by scholarships under "Did you pay for Books or Materials to attend school", books, room and board, etc. Do not include expenses you already allocated to your own 1099-Q.
Yes, Under "Did you pay for Room and Board with a scholarship", put "yes" and insert the number to maximize the credit.
When you reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is $4000. That will reduce the expenses used for the 1099-Q.
The statements “$5,750 of Box 5 was for 2019 costs” and “Scholarships received and used for 2020 is $26,730.00 don’t jive”. You will reach a screen “Did Sam’s aid include an amount not used for 2020 expenses; Enter $5750. Not doing this may explain the high ($10,341) taxable amount calculated.
Yes, the taxable amount of the 529 plan distribution will show up on Line 8, of Schedule 1 noted as 1009-Q taxable amount (or some such wording). Total qualified expenses less amounts paid by tax free 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 (using you numbers, as I understand them):
$28,915 in educational expenses (15230 +4061 +8374 +1250)
-$10,982 paid by tax free scholarship (26730-10028-5750)
-$4000 used to claim the American Opportunity credit
=$13,933 Can be used against the 1099-Q
Box 1 of the 1099-Q is $25000
Box 2 is $12074
13933 / 25000 = 55.7% of the earnings are tax free
55.7% x 12,074 = $6729
You have $5345 of taxable income (12,074-6729)
There are two questions you didn’t ask:
1. Can Sam file independent or is he still Kent’s dependent?
2. Is Sam eligible for the AOTC on his own return, even if he doesn't qualify as a dependent?
I think the answers to both questions is no. I'll explain in a separate reply.
