Q. The Adjusted Higher Education Expense applied amount is $10,227 (this is the number I am trying to figure out how to calculate)?
A. $13, 332 + 895 = 14,277 QEE. $14,277 - $4000 (used to claim the AOTC) = $10,227 AQEE
TurboTax is doing it right, with the limited info you input. You need to enter your room and board expenses, even if the student lives off campus or at home. You must be half time or more to claim R&B.
$13, 712 (529 distribution) - 10,227 AQEE = $3485 is all the R&B you need. It's low enough, that you can assume you have that much.
Just don't enter the 1099-Q. Enter the 1098-T and claim the AOTC (American Opportunity Tax Credit).
The 1099-Q is only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you can.
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records (you don’t need it). You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships.
References:
- On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
- "IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc; then, you do not need to enter the form."
