how to reduce 1098t amount for coverdale 1099-Q

[wildcatfan]

Im divorced. X wife claims 22 yr old daughter on taxes. Daughter was full time student at least half of last year. We set up a coverdale ESA for daughter while still married  and I am now the custodian. 

This year my daughter received her 1098T form from college ... to simplify the numbers in the example....she paid 25000 in tuition box 1 and had 5000 in scholarships in box 5 and nothing else on the form

questions

I requested at 12000 disbursement from the coverdale and recieved at 1099-Q form showing 12000 to me

1. i paid 12000 out of pocket and daughter took govt loans in her name for 8000 for college (25000 total tuition on 1098T -5000 scholarship -12000 from me= result of 8000 of payment by loans from govt to daughter in daughter name)

Now tax time..

2. I input the 12000 on my taxes as 1099-Q recipient and show 12000 in out of pocket I paid for tuition .. so my 1040 form now shows no taxes due as expected. I think this is correct.. Maybe I do no even have to enter the 1099Q or tuitions expenses on my form?? thoughts on this?

3. x wife claims american opp tax credit since she claims daughter as dependant. I make too much for amer opportunity so wife claims daughter as dependant even though x does not pay for college other than via the coverdale we set up when together to pay for it. 

so now the math is -- total of 8000 remaining that is paid from loans of the 25000 in tuition on 1098T

-daughter cannot claim this as she is claimed as a dependant on x's tax form

x can claims 2500 american opporunity credit against her taxes as a result of 8000 paid by daughter via loans... 100% of first 2000 plus % of remaining 6000 in tuition cost.

Is this correct thinking?

In this case, the  tax credit will be returned to daughter to pay off loans since she cannot claim her self but has the loans in her name.  If x or we took out loans, this would be much more obvious as money paid out of pocket to apply for AOTC. 

lastly, assuming all of the above is accurate. 

In turbo tax how does x input values to make the AOTC math work

Does she input 1098T amount box 1 and box 5 in turbo tax and then put 12000 in other so that remaining total for AOTC is the 8000? She has no where to enter a 1099Q since it does not come in her name. I properly file that 1099Q in may name and reduce it by the 12000 our to pocket on my form as no taxable eductation payments on behalf of daughter

Any clarity appreciated. 

[AmyC]

1. Got it. 

2. Don't need to but nice to have it in there and show used, preferred.

3. Yes, the ex will get the credit on her return.

4. Only $4,000 of expenses is needed to qualify for the full $2,500 AOTC. She can input the 1098-T without worry. The family can prove $8,000 was paid out of pocket, at minimum. This beats the $4,000 needed for the credit so there is no concern.

The tax form uses the $4,000.

The 1099-Q is also allowed to be used for room and board. We all know college kids can eat!

[wildcatfan]

answer 2 below

Actually I forgot to enter the 1099-Q on my tax form. The 1098T will go on X wifes form since she claims daughter.

I presume you would not advise to amend my taxes to add the 1099Q info which will result in no affect on taxes or return?

PS I though Room and board only worked if paid directly to the college? Is that correct

You seem educated.. one more question... daughter is in her last year of school. there is money left in the coverdale ESA. Im thinking the best idea it to roll to a 529 plan where I can then use 10000 of the money to pay off student loans she took out. How do you feel about that idea.

Thanks

[MaryM428]

Coverdell ESA owners may roll funds into a 529 plan for the same beneficiary without tax consequences. The distribution is tax-free when the 529 plan is funded within 60 days.

Holders of 529 plans can withdraw up to $10,000 from their plan to pay down qualified student loans penalty-free—with conditions. The first is that the $10,000 maximum is a lifetime limit for a beneficiary and each sibling. This means a family with two children can take out a maximum of $20,000 to pay down their student loans. Secondly, plan holders cannot claim any student loan interest deductions paid with this money.