Thank you for your reply. The reason I am not asking about the AOTC is that a) my wife and I can't claim it because we are income-disqualified, and b) my sons can't claim it because none of them provide more than half of their support. (Please correct me if my understanding is incorrect. I don't think it is, because after running all the permutations of can/can't be claimed, will/won't be claimed, and do/don't provide 50% of their own support, the only times TurboTax shows an AOTC is if I indicate that they do provide 50% of their own support.) The only thing that can be monetized, then, is the LLC - and only if it is claimed by each son (again, because my wife and I are income disqualified); this, of course, would preclude my wife and I claiming the Child Tax Credit for each of them. So there's an interaction between the two. (If, as I suspect, we end up claiming them as dependents, the Child Tax Credits will end up funding our grants-in-lieu-of-LLC to each of the boys.)
For all three of my sons, the amount reported in Box 1 of the 1098-T exceeds the amount reported in Box 1 of the 1099-Q. That is, the distribution from the 529 was less than the amount the university reports as having been received for qualified educational expenses. If I interpret your discussion of how to determine what percentage of 1099-Q Box 2 distributions are taxable correctly, none of my three boys should be showing anything on 1040 Line 8. And yet, one of them does. (And, in fact, it appears to me that this is what qualifies him for the LLC; see, by comparison, his twin brother.)
So with respect Freshmen #1 and #2, at least, it now appears I have one or the other of the following problems: either Freshman #1 is having 529 distributions incorrectly included in his taxable income (and receiving the LLC as a result), or Freshman #2 is incorrectly having them excluded and is being denied the LLC as a result.
Any thoughts? And please correct any misunderstandings I have.
I am still in the process of digesting the rest of your response.
Thanks again.
