topic Re: Resolved in comments. in Education

My 1098-T Form is missing Room & Board expenses.

Prethen — Wed, 05 Jun 2019 23:40:44 GMT

I've seen this question asked and answered in a variety of ways in different forums (even here). My understanding from CollegeInvest.org is that room & board should be considered a Qualified Expense. I have not started the process of trying to enter this data yet into TurboTax but will within the next month. My understanding is that basically all fees (including room & board) billed by a university are essentially considered qualified (but then it's a mystery to me why that wouldn't be on the 1098-T). Am I correct...are those fees a definitively a Qualified Expense?

No, you are not correct. I don't know where you got your...

rjs — Wed, 05 Jun 2019 23:40:46 GMT

No, you are not correct. I don't know where you got your understanding. The American Opportunity Credit and the Lifetime Learning Credit are for tuition and fees. Room and board are not qualified expenses for either credit.

You can review all the rules for the education credits in detail in IRS Publication 970, which you can download from the following link.

https://www.irs.gov/pub/irs-pdf/p970.pdf

That's unfortunate. I guess one of the CollegeInvest repr...

Prethen — Wed, 05 Jun 2019 23:40:47 GMT

That's unfortunate. I guess one of the CollegeInvest representatives misinformed me. I suppose that when I pull those funds out from my 529 that when I report that it will be taxable. Interestingly enough, I recall a CollegeInvest representative telling me what the IRS considers as "acceptable" room & board expenses if my child were to be living on their own in an apartment for instance.

As I indicated in my answer, I assumed you were asking ab...

rjs — Wed, 05 Jun 2019 23:40:48 GMT

As I indicated in my answer, I assumed you were asking about the education credits - the American Opportunity Credit or the Lifetime Learning Credit. The rules for a 529 plan are different. That might be why you are confused about what are qualified expenses. Room and board can be qualified expenses for a 529 plan, with some restrictions. For details, see "Qualified education expenses" on pages 56-58 of Publication 970, at the link that I gave you above.

(The 2017 edition of Pub. 970 is not available yet. The link will give you the 2016 edition, and the page numbers that I referred to are for the 2016 edition. There are no changes for 2017 regarding 529 plans or the two credits that I mentioned, except inflation adjustments of the income limits for the credits. However, the Tuition and Fees deduction is not available for 2017.)

Yes, I just figure that out that I basically did not real...

Prethen — Wed, 05 Jun 2019 23:40:50 GMT

Yes, I just figure that out that I basically did not really ask the right question. I did mean this in relation with pulling out funds from my 529 savings. I just reconfirmed with Chapter 8 of IRS Form 970 that Room & Board is a qualified expenses as it relates to a 529 plan. Sorry for my confusion there. The 1098-T is released without regard to any 529 that someone might be participating in. As a result, many qualified expenses (like a computer, books, etc.) will not be included. Thank you for the replies.

I feel IRS should modify 1098-T to include 529/QTP qualif...

skfrmnt — Wed, 05 Jun 2019 23:40:51 GMT

I feel IRS should modify 1098-T to include 529/QTP qualified expenses so that the schools can report the expenses including room and board correctly.

So how do I report the extra amount used for Room&Board,...

TaxTim — Wed, 05 Jun 2019 23:40:52 GMT

So how do I report the extra amount used for Room&Board, computer, etc, on the 1099Q that is higher than what's on the 1098T such that it's not taxed?

Resolved in comments.

rjs — Wed, 05 Jun 2019 23:40:55 GMT

Resolved in comments.

Re: Resolved in comments.

ahzimmerman — Sat, 01 Feb 2020 21:26:48 GMT

rjs, no, it's not resolved. Do you or does someone know the answer to TaxTim's question? I have the same issue. Thx.

Re: Resolved in comments.

NCperson — Sat, 01 Feb 2020 23:03:48 GMT

let me answer in the form of an example

1) 1098-T - Box 1: $10,000

2) 1098-T - Box 5 - $5,000

3) 1099-Q - Box 1 - $5,000

4) 1099-Q - Box 2 - $500

5) room and board expenses - $6,000

(for simplicity, assume there is no AOC for Liftime learning credit

so this example means there are $16,000 of college expenses, $5,000 of which were covered by a scholarship.

of the remaining $11,000 of expenses, $5,000 was paid for with a distribution of a 529 plan.

because the remaining expenses ($11,000) exceeds the 529 distribution, none of the $500 (1099-Q Box 2) of earnings should be taxable)

1) assuming the student is a dependent on the parents return, the 1098-T is to be posted on the PARENTS return (it only goes on the student's return if the student is not a dependent of anyone else OR Box 5 exceeds Box 1, which it is not in this example)

2) the 1099-Q goes on the return of the person whose social security number is listed (if the parent owned the 529 and had the money send directly to the school or the student, the student's ss# will be listed; if the parent received the money directly, the parent's SS# will be listed). BE VERY CAREFUL HOW YOU ANSWER THE TT QUESTIONS, as it is tricky and this is where errors can be made.

does that answer the question?

Re: Resolved in comments.

ddaday — Mon, 11 May 2020 19:43:25 GMT

Great info, but it doesn't resolve the original question, at least as pertains to my situation. Here is what I mean:

1. Total college expenses for the semester (simplified):

$6,500 Tuition and Fees

$7,000 Room and board

=$13,500 Total expenses

The 1098T only lists $6500, whereas the 1099Q lists $13,500, implying that I owe taxes on the $7,000 (all contributions made by me and distributions made to me). That seems like a problem, no? I didn't get a tax break on the contribution (no tax break for 529 contributions in NC), and then I have to pay taxes on the distribution, even though it's going to a qualified higher education expense?

Re: Resolved in comments.

Hal_Al — Mon, 11 May 2020 21:08:28 GMT

Room and board (R&B) are not qualified expenses for a tuition credit or for tax free scholarships. So, R&B are not included in box 1 of the 1098-T.

However, as you correctly note, R&B are qualified expenses for a 529 plan distribution. Since you have a $13,500 distribution and $13,500 of expenses; the simple solution is just don't enter the 1099-Q in TurboTax (TT). Don't enter the 1098-T either.

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."

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction or possibly your student has taxable scholarship income.

Re: Resolved in comments.

Hal_Al — Mon, 11 May 2020 21:12:38 GMT

Qualified Tuition Plans (QTP 529 Plans)

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit, that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)

-$3000 paid by tax free scholarship***

-$4000 used to claim the American Opportunity credit

=$3000 Can be used against the 1099-Q (usually on the student’s return)

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)

**Alternatively; 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. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip! 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, in case of an IRS inquiry.

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.

Re: My 1098-T Form is missing Room & Board expenses.

Carl — Wed, 13 May 2020 16:49:40 GMT

The only "QUALIFIED" education expenses are tuition, books, and lab fees. That's it. There are no exceptions. Not ever.

Qualified education expenses and stuff will be reported to you on a 1098-T.

529 distributions will be reported to you on a 1098-Q.

However, you must understand how things work when it comes to a 529 plan distribution.

For starters, colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you FIVE CALENDAR YEARS to get the four year degree. Now you would think that complicates matters when it comes to taxes. But it really doesn't. The IRS rules actually simplify it.

- Scholarships, grants, and 529 distributions are reported as taxable income *** INITIALLY*** in the tax year those funds are received. It *does* *not* *matter* what tax year those received funds may be "for".

- Qualified Education Expenses are reported/claimed in the tax year they are "PAID" and it *does* *not* *matter* what tax year is paid *for*.

Scholarships and grants can be used to pay for the qualified education expenses of tuition, books, and lab fees. That's it. There are no exceptions.

- 529 distributions can be used to pay for the qualified expenses of tuition, books, and labs fees *AND* the unqualified but allowed expense for room and board *PROVIDED* that room and board is paid "IN DIRECT SUPPORT" of the education.

So when entering information in the Education section of the program, it is imperative that you work through that section of the program the way it is designed and intended to be used. If you do not, then chances are EXTREMELY high that you will not be asked for room and board expenses, and therefore you WILL PAY TAX on the 529 distribution.

Re: My 1098-T Form is missing Room & Board expenses.

42baker-- — Sun, 28 Feb 2021 04:21:05 GMT

Replying to Carl- so there is a spot to put in Room & Board? I am running into issue with a 529 withdrawal in December 2020 (received a few weeks early) for 2021 school year that is causing me to show more distribution in 2020 and wonder if the taxable income for 2020 can be reduced by counting 2020 room & board.

Re: My 1098-T Form is missing Room & Board expenses.

42baker-- — Sun, 28 Feb 2021 05:01:39 GMT

Nevemind. I found it. Thanks for noting it.

Re: My 1098-T Form is missing Room & Board expenses.

TaxHelpNeeded3 — Sun, 28 Feb 2021 19:42:13 GMT

Can you say where you found the answer 42baker? I have the same issue.

Re: Resolved in comments.

chilityler — Tue, 30 Mar 2021 01:48:58 GMT

I have similar situation and I don't know how to file my tax to avoid mistake being tax or get 10% penalty.

My son is full time college and I claim him as dependant:

1098-T is under his name:

1098-T box 1 $11,000

1098-T box 5 $14,000

1099-Q to my name become distribution sent to me who pay room and board for my son = 3000

1099-Q box 1= 1700

1099-Q box 2= 1300

Room and Board (I paid) = 10,500

He got another scholarship but we did not get 1098-T = $4000

how do I file my return w/o getting penalty? Currently, I did something wrong that why my 1099-Q box 2 of 1300 is listed as taxable income. I don't see any box for me to list the actual room and board expense as qualified expense, that cause my distribution subject to tax. Please help.

Re: Resolved in comments.

Hal_Al — Tue, 30 Mar 2021 02:45:14 GMT

@chilityler Just don't enter the 1099-Q, since you know you have more than enough expenses to cover it ($10,500 > $1700). 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.

_________________________________________________________________________________________

Two other issues you don't mention: 1. Are you eligible to claim the American Opportunity Credit (AOTC) and 2. your son has taxable scholarship that may have to be reported, on his tax return.

You may claim the AOTC even though all your son's expenses were covered by scholarship.

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $18,000 in box 5 of the 1098-T and $11,000 in box 1. At first glance he has $7000 of taxable income and nobody can claim the American opportunity credit. But if he reports $11,000 as income on his return, the parents can claim $4000 of qualified expenses, for the AOTC, on their return.

Books and computers are also qualifying expenses for the AOTC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, he would only need to report $10,000 of taxable scholarship income.

Re: Resolved in comments.

chilityler — Tue, 30 Mar 2021 02:57:02 GMT

Thanks Hal-Al for prompt response.

Let me get into more detail.

My son got two separate scholarships but only one sent 1098-T to him annually. One is for $14K/year, other is $4500/year but never send any document. The total scholarship amount I put in original amount is actually the combination of the two (even though we got 1098-T from only one place for $14k). I take his total expenses (tuition, room and board), then subtract from total of two scholarship, the difference is the amount I got reimbursed from 529 funds which I received the 1099-Q since I am the owner but he is the benefit. The bottom line, they net out zero.

Question 1: so it is safe for me not to report any of those forms in 2020 TT filing if I know they net out zero? I have detail file that list all expenses and back-up receipt.

Question 2: he has some small income from working reported on his W2 less than $3000. Even I claimed him on my joint-married filing, should I do another separate filing on 1040 EZ form for him? Will he get any benefit?

Question 3: I haven't checked out other credit yet since I don't think I will be qualified cause my AGI is over $190K. Am I wrong?

Question 4: how do I know if his scholarship is taxable? this is his second year and his school just sent 1098-T with box 1 and 5 as I provided earlier. Nothing else.