Some of the distribution is taxable.
"Coordination With American Opportunity and Lifetime Learning Credits". This does not apply to my situation.
You say this does not apply, but it does because you ARE getting the lifetime learning credit. It is listed on Schedule 3 line 3.
That is why part of the distribution is being taxed.
Your distribution was 12,699, and 10,000 is being used for the credit, so 2,699 was used for AQEE.
Multiply the total distributed earnings shown in box 2 of Form 1099-Q (9,268) by a fraction. The numerator (top part) is the AQEE paid during the year, (2,699) and the denominator (bottom part) is the total amount distributed during the year.(12,699)
2. Subtract the amount figured in (1) from the total distributed earnings. (9,268) The result is the amount the beneficiary must include in income. Report it on Schedule 1 (Form 1040), line 8z.
9,268 x 2,699/12,699 = 1,969.79
9,268 - 1,969.79 = 7,298.21
If you took a 12,699 distribution and didn't pay any education expenses, you would be tax on all the earnings 9,268.
You took a 12,699 distribution and used 2,699 on expenses (and 10,000 on the credit) so not ALL the earnings are taxable, only a portion.
If you don't want ANY of the distribution to be taxable, don't take the credit.
Education expenses can be used to offset scholarships and 529 distributions (1099-Q).
Tuition, fees, books, and supplies can off set either scholarships and/or distributions. They can also be used towards an education credit.
Room and board expense can offset a distribution (1099-Q) but cannot be used to offset scholarships, nor can they be used towards a credit.
Expenses can only be used once.
Tuition, fees, books, and supplies can be applied towards a credit OR to offset a distribution or scholarship.
Room and board to offset a distribution only.
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