Q. We had to take advantage of the covid 401k withdraw and it put us above the $180k mark. Do we not qualify for the American Opportunity Credit
A. Correct, you no longer qualify for the AOC because your income is too high. I'm not aware of any exception for covid related 401k withdrawals and the AOC . You could enter in TT and see what it says. It should tell you you don't qualify.
But, that changes everything. Since you don't qualify for the AOC, your student has enough expenses for both the 1099-Q and his scholarship. He should enter nothing about education on his tax return. No 1099-Q, no 1098-T. None of his scholarship is taxable. None of the 1099-Q is taxable.
$5784 Tuition and fees
+ 1193 Books and computers
= 6987 Total qualified expenses (room & board don't count for credits & tax free scholarship)
- 0 Used by the parents to claim the American Opportunity Credit
= 6987 Can be covered by tax free scholarship
- 5000 Total Scholarship received
= $ 0 Taxable scholarship
Unfortunately, I had already answered all the other questions before I saw the 401k question. So, I'll post those answers below for other users with similar situations.
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Q. So when I visit the education portion, 1st question I answer is Yes I have a 1098T?
A. Yes
Q. Do I answer no to being the beneficiary of a coverdell and no to receiving a 1099Q?
A. Yes, essentially. You don't even enter the 1099-Q section, on either your return or the student's. If you already did, delete it. The 1099-Q
Q. Then if I understand correctly I only enter to $4000 in box 1 and ignore any of the other boxes on my return.
A. Yes. Ignore only boxes that call for entering $ amounts (yes check box 8).
Q. Then do I enter other expenses on my return (books, computer etc) on my return?
A. No
Q. Do I enter any of his scholarship info on my return.
A. No. Entering the $4000 in box one takes care of what you need (the AOTC and nothing else)
Q. now that I have entered all the info on his filing, am I not allowed to enter any of the education expenses on mine? Is putting the $4000 from box 1 (on my form) enough to give me the deduction even though I have made no claim to additional expenses (on my form).
A. Yes, putting the $4000 in box 1 gets you the maximum credit (something less than the $2500 max because of your income). It's a tax credit , not a deduction
Q. Do I enter other expenses on my return (books, computer etc) on the student's return?
A. Yes, as previously instructed.
