Q: One other after thought: It's unclear, to me, what the $1000 room & board (R&B) scholarship is and why isn't it included in box 5 of the 1098-T. Although it was issued for R&B, is it restricted to R&B? Technically a scholarship restricted to R&B would be taxable income to the student (R&B is not a qualified expense for tax free scholarship). But, if it can be used for tuition, then deducting $17K instead of $16K is correct.
In other words, if you're sure there was actually $17K of scholarship, and not the $16K shown in box 5 of the 1098-T, then use the original calculation of $1691 as the taxable amount of the 529 distribution, rather than $1186.
A. In her scholarship letter is specifically says $1000 scholarship for Room And board. I suspect it is not included in Box 5 of the 1098-T because it is only for R&B and the 1098-T does not include R&B cost in Box 1 and therefore does not include R&B scholarship in box 5.
So, going under the assumption that the $1000 in scholarship for R&B would that mean I need to add the $1000 to the $1186 for a total of $2286 in the workaround discussed or do I need to do something different? Or is the calculation of 1186 correct?
