Q. I think this should be $0 since his qualified expenses = 529 Plan distributions.
A. Yes, that's correct.
Q. Can anyone advise how to fix this?
A. The usual reason TurboTax (TT) gets it wrong is that it assigns some of the tuition to claiming the tuition credit, whether the parents actually did or not.
Delete the 1099-Q and 1098-T and start over. Re-Enter the 1099-Q first. Later, the 1098-T. In the education interview, answer yes when asked if you have book expenses. That will get you the screen to enter room and board.
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 (it sounds like it should be 0 in your case).
Q. We are not including the 1098-T on our (parents) tax return since all of the tuition/college expenses were paid for with the 529 plan distributions.
A. You are not required to do it that way. You are allowed to allocate the expenses between the 1099-Q and the tuition credit to get the maximum tax benefit. The American Opportunity Credit (AOC or AOTC) is 100% of the first $2000 of tuition and 25% of the next $2000 ($2500 maximum credit). There is an income limit of $180K (married filing jointly) to qualify for the credit.
