American Opportunity Tax Credit and 529 Plan
cancel
Showing results for 
Search instead for 
Did you mean: 
Highlighted
Anonymous
Not applicable

American Opportunity Tax Credit and 529 Plan

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.

3 Replies
Highlighted
Expert Alumni

American Opportunity Tax Credit and 529 Plan

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 ...

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Highlighted
Anonymous
Not applicable

American Opportunity Tax Credit and 529 Plan

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. 

Highlighted
Expert Alumni

American Opportunity Tax Credit and 529 Plan

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

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Privacy Settings