Q. Can she claim the Lifetime Learning Credit (LLC) even though she was the recipient of a QTP (Qualified Tuition Plan) distribution?
A. Simple answer: No.
But more accurately, she can not double dip. She can not use the same educational expenses to claim a tuition credit and also claim that the 1099-Q is tax free. But she is allowed to allocate those expenses for the best tax advantage. For most people, that means she should claim the LLC, even if it means paying some tax on the earnings portion of the 1099-Q. The LLC is 20% of tuition paid, up to $10K. Claiming a tuition credit is a penalty exception, so even though tax may be due on the 1099-Q, there will be no 10% penalty. In addition, room and board (even if she lives at home) is a qualified expense for a 1099-Q, if she is a half time or more student.
For more specific advice, provide the following info;
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Any other scholarships not shown in box 5
- Does box 5 include any of the 529/ESA plan payments (it should not)
- Is any of the Scholarship restricted; i.e. it must be used for tuition
- Box 1 of the 1099-Q
- Box 2 of the 1099-Q
- Room & board paid. If student lives off campus, what is school's R&B on campus charge.
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
- How much taxable income does the student have, from what sources
- Was student half time or more
