I claim my son as a dependent, and file his 1098-T in order
to receive the American Opportunity Credit and also Education Credits. This year my son's income exceeds the tax
threshold, so he will be filing also. He
is the named beneficiary of two 529s, and the amount distributed for 2017
matches school expenses (tuition, room & board, books) exactly. I’ve read that if I file Form 8863, the expenses taken into account in figuring the American opportunity credit (Form 8863 line 27) should
be subtracted from my son's total qualified education expenses (which is the exact amount distributed). This results in an
Adjusted qualified education expenses (AQEE) which does not match 529 total
distributions and will result in taxable income for my son. Is this correct? If so, what forms would my
son have to include with his return, or would I be better off not claiming the American Opportunity Credit
and Education Credits? I’m going crazy
trying to figure this out.
Thank you so much for your response.
As the account owner, I requested distributions so that my son is the recipient
and 1099-Q Box 6 is not checked. I want to make sure I have this – my son would not enter the
1098-T or 1099-Qs and he would follow the Less Common Income instructions. Does entering “Scholarship” trigger the appropriate
worksheet? It is other taxable income, but certainly not a scholarship. Pub 970 calls it “distributed
earnings not used for adjusted qualified education expenses”.
New question - does the "other taxable income" have to be entered on the state tax form, and if so, where? Thank you.
