AOTC Credit

[MBINAT]

Please advise if parent's can claim AOTC credit on their returns if they pay students room and board expenses using kids 529 savings plan (Student is the Beneficiary and Parent is the owner) after meeting all other requirements? 

[RobertB4444]

The AOTC is only for tuition.  So as long as one of the other requirements that you met is that you paid their tuition as well then yes, you can claim the AOTC.  But the room and board expense doesn't qualify for the AOTC.

@MBINAT 

[MBINAT]

Thanks. But Turbo tax software is adding AOTC credit after I enter room and board expenses. Isn't it a bug in the Turbo tax software? There is a small tool tip next to room and board while entering 1098-T, it says room and board expenses are allowed if we pay by 529 plan. I talked to one of the experts and they said we can claim if we pay room and board expenses using 529 savings plan

[DawnC]

Room and Board can be paid from 529 distributions.   However, room and board is not a qualified education expense for the purpose of taking education credits.  

But, if you apply the 529 distributions to room and board, that can free up tuition payments that can be used to claim the credit.  

[MBINAT]

It's still confusing. If the tuition fee is covered 100% by scholarship as we are in state student and paid room and board expenses using 529 savings plan, then do you think we can still claim AOTC credit with the expenses that we paid for room and board using 529?  Thanks 

[DianeW777]

No. The amount used from the 529 savings plan that paid for room and board allowed these funds to be withdrawn tax free. The IRS does not allow double credit for that. No room and board expense paid with any funds is allowed for the AOTC.

@MBINAT 

[MBINAT]

Thanks for confirming. so it will be a double dipping but Turbox tax is adding AOTC credit as soon as I enter amount in room and board expense section. this might be a bug then. I will just not add room and board expenses while entering 1098T as I paid with 529 and then go ahead file taxes.  Thank you so much.

[Hal_Al]

You said "the tuition fee is covered 100% by scholarship as we are in state student".  Are you sure the scholarship is restricted to tuition?  Verify with your school that the scholarship must be applied to tuition.  If not, you may be eligible for the AOTC

There is not a bug in TT.  You're entering the R&B in the wrong place. The reason TT is giving you the AOTC when you enter R&B is because it reallocates the scholarship from tuition to R&B. This frees up the tuition for the AOTC.  

Do you have any book and computer expenses that can be allocated to the AOTC?

[MBINAT]

Thank you. I do have books and some other small expenses but that is almost around 500 dollars. We may be buying a new laptop this year.  If I enter 500 on the same screen, I'm not receiving anything. I was thinking it is 100% for first 2000 expenses. Please advise

So I understood, If we pay any expenses (Tuition, Mandatory fees, room and Board etc., ) using 529 distribution that is not eligible for AOTC, right?

[Hal_Al]

Q. So I understood, If we pay any expenses (Tuition, Mandatory fees, room and Board etc., ) using 529 distribution that is not eligible for AOTC, right?

A. No.

That's not your issue. You are free to allocate expenses to any tax attribute (AOTC, 529 distribution, tax free scholarship) for the best tax outcome. But there's one exception; restricted scholarships must be used for the expenses mandated in the scholarship terms (usually tuition).  So you can not claim the AOTC, based on the box 1 (of the 1098-T), if the scholarship is so restricted. 

Q. If I enter 500 on the same screen, I'm not receiving anything. I was thinking it is 100% for first 2000 expenses. Please advise?

A. Yes, you should be getting a $500 credit. Enter at book expenses. Also enter room and board. Enter the 1099-Q before entering the 1098-T. You may have to delete and re-enter. 

The interview is tricky.

Provide the following info for more specific help:

• Are you the student or parent.
• Is the  student  the parent's dependent.
• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• Does box 5 include any of the 529/ESA plan payments (it should not)
• Is any of the Scholarship restricted; i.e. it must be used for tuition
• Box 1 of the 1099-Q
• Box 2 of the 1099-Q
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
• Room & board paid. If student lives off campus, what is school's R&B on campus charge. If he lives at home, the school’s R&B “allowance for cost of attendance” for student living with parents.
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
• How much taxable income does the student have, from what sources
• Are you trying to claim the tuition credit (are you eligible)?
• Is the student an undergrad or grad student?
• Is the student a degree candidate attending school half time or more?

[AmyC]

We try to get the 529 used up first, preferably with room and board. Then we look at scholarship money. If it has to be used for tuition, ok. If not, we can say that some of the scholarship money went to living expenses instead of tuition. This may create a little income for the student but can allow a large credit for the parent.  The IRS has a great brochure that explains how scholarships and tax credits interact. Hal_Al gave a great list of questions for better help.