Thank you. I'm still having some trouble understanding the best course of action for allocating these expenses. We want to maximize AOTC.
1. The student is the beneficiary and recipient. The 1099-Q came in her name. We planned to add it to her taxes, and the 1098-T to ours since we are claiming her as a dependent.
2. The 1099-Q for the 529 distribution has: Box 1 - $1,134. Box 2 - 0; Box 3 - $1,134. There were no earnings.
3. I'm trying to make sure I don't double dip, but I'm confused. We planned to use the entire $1,134 529 distribution for the $3,040 room and board (with $1,906 in room and board left over). We wouldn't claim that $1,134 towards the AOTC because I didn't think you could use room and board expenses for AOTC?
4. Once I add up tuition and fees, deduct the restricted scholarships, and add books/supplies, there are $3,799 ACTUAL qualified education expenses. That is $201 less than the maximum of $4,000 for AOTC. Is that $3,799 all I should claim towards the AOTC? We won't quite get the full credit of $2,500, but that's okay. It's close enough, and I just want to be sure I'm asking for the maximum legal credit.
5. If I put $3,799 of expenses towards the AOTC, does that also mean she should have $3,799 removed from unrestricted scholarships and grants received, and claimed as taxable income? That would still put her total income around $10,000 with her job, so she wouldn't owe taxes (I don't think?). Again, trying to make sure I don't double dip.
6. Does it matter that I didn't actually pay $1,134 to University A for room and board all at once, as long as I have enough room and board expenses at the end of 2024 to account for the $1,134 listed on her 1099-Q?
7. She received an unexpected grant of $785 at University A. It was supposed to cover two quarters in 2023, and one quarter in 2024 (so $261 per quarter, with only one quarter in this tax period). We didn't know she was getting it until June 2024, and I wasn't sure what to do with the grant, so I put the whole $785 grant into her 529 plan. How do I account for that grant in these calculations? The 1099-Q doesn't spell it out, but I read over her 529 plan disbursement records. The 1099-Q does take into account that the $785 grant was deposited into her 529 plan. I just don't know how to make this make sense on our tax return.
So what I thought I should do was (1) claim $3,799 in actual qualified expenses for AOTC (2) take $3,799 from tax-free scholarships and grants and make that $3,799 taxable income instead (3) use $1,134 in 529 distribution for room and board with $1,096 left over that I'm not sure what to do with (if anything).
Or is that wrong? Is there a more financially sound way to allocate this money to get the maximum legal AOTC?
