Q. I qualify for the American Opportunity Credit (AOC). Is there anything I need to change on my return at this point?'
A. YES.
Q. You had mentioned that I could just delete the 1098-T and 1099-Q data from my and my daughter's returns.
A. That's not longer true, now that you are claiming the tuition credit.
First, do delete your 1099-Q form your return. You have sufficient expenses to cover it (the computer and orientation fee). Then enter the 1098-T on your return, under educational expense, under deductions and credits. TT will automatically give you the AOC. You do not need to enter any other numbers, only the box 1 amount.
On the student's return, enter the 1099-Q first, then later, at educational expenses, enter the 1098-T and the books and room and board expenses. In her interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is $4000 (the amount you used on your return). That will reduce the amount of expenses she uses for her 1099-Q, making some of it taxable
Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s return. Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary". Click edit next to the student's name. That should take you to a screen “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.
If you still don't get that screen, The workaround is to enter $4000 less than the actual box 1 amount, when you enter the 1098-T.
The calculation goes like this: $17830 total expense minus 4000 used for AOC = 13,830 available for 529 distribution (1099-Q). 13,830 / 17830 = 77.56% of the earnings are tax free (22.44% are taxable). 0.2244 x 10260 = 2301 taxable income (from the 1099-Q) on her return. TT should do all that. The calcs will show on the Student info worksheet and the 1099-Q worksheet. TT will also prepare form 5329 to claim the penalty exception (you using some expenses for the AOC). Be advised that income is subject to the "kiddie tax" (taxed at the parent's marginal tax rate). Form 8615 will be generated.
