topic American Opportunity Tax Credit and 529 Plan in Get your taxes done using TurboTax

American Opportunity Tax Credit and 529 Plan

Anonymous — Sun, 09 Feb 2020 23:12:37 GMT

I did a distribution from my son's 529 plan to cover tuition and room and board.

The distribution was paid directly to me.

I am attempting to complete the American Opportunity Credit.

Total distribution on the 1099-Q is $21,162.00. Earnings of $2,028.90 Basis is $19,133.10.

Tuition is $12,148, room and board $10,694. Other qualified expenses (books/supplies) are $209.

He had a scholarship of $1,500.

The calculation in TurboTax is reducing my adjusted qualified expenses by $10,378 leaving me with adjusted qualified expenses of only $479. Is this correct? Although I'm able to pay the room and board out of the 529 plan it looks like it is affecting my qualified expenses. I have more than enough in tuition costs to cover the $4,000 credit expense cap.

Re: American Opportunity Tax Credit and 529 Plan

VictorW9 — Sun, 09 Feb 2020 23:40:52 GMT

It looks correct. Qualified expenses for AOTC include tuition and other expenses for books, supplies and equipment the student needs for a course of study.

Room and board is not a qualified expense for AOTC credit. However, it is a qualified 529 expense.

Additional information for the AOTC What expenses qualify for the American Opportunity ...

Re: American Opportunity Tax Credit and 529 Plan

Anonymous — Mon, 10 Feb 2020 01:24:19 GMT

I’m not sure if my original post was clear enough.

$12,148 tuition

$10,694 room and board

$123 Books and supplies

I consider at least the tuition and books to be eligible for the credit. His scholarship was only $1500.
My qualified expenses are being reduced by the room and board which is an allowable expense for a 529 distribution. I do understand that it’s disallowed for calculating the credit. The software is allowing the tuition and books, however why is it reducing that amount by $10,000+ (Which I’m assuming is the room and board)?
Isn’t the $12,000+ in tuition fully eligible? My basis was $19,000+ . The $479 final qualified expenses makes no sense to me.

Re: American Opportunity Tax Credit and 529 Plan

KrisD15 — Mon, 10 Feb 2020 20:20:23 GMT

Yes, you can allocate expenses, scholarships and distributions.

If you continue through the Education Section Interview, you will come to a screen that says "Maximize My Education Tax Break"

When you click that, the program does just that, allocate to give you the best bottom line.

Below is a link to how the IRS discusses just this subject:

Education expense allocation