1098T/expenses for dependent

[ld1995]

Hello,

We received 1099Q from 529 plan - one of which was in parent SS, one in dependents SS#. We also received 1098T. Our expenses for the year exceed the amount received from 529.  In addition, my child did receive scholarships that are included on 1098T. (possibly taxable). We will not receive or have never received an education credit. 

I will be claiming my child as a dependent but she earned a small amount so it is beneficial for her to file also for refund.

In TT, do I enter same information on both hers and our returns for 1098,1099, and expenses?  When I enter for her, it has Schedules 1 & 2 included with filing, along with 5329 for dependent's return.   Those forms are not included on our return.  

Is this correct?

Thank you

[AmyC]

No. The 1099Q can be tucked into the tax folder as it isn't entered since they were used completely for qualified expenses. The 1098T goes on the tax return where the student is claimed, Which would be your return. Except, it does you no good so you don't have to enter it on your return.

Reference:  IRS Publication 970, Tax Benefits for Education. which states: Tax-Free Distributions

Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.

As for your student, additional scholarship would need to be claimed.

I recommend you make a really good list to put with your tax returns showing the money trail. 

1. Start with the 529 since that could have penalties we don't want.
2. List the 529 money and subtract all possible towards room and board, other qualified expenses, and the remainder to tuition.
3. Next, list the scholarship, subtract any remaining eligible expenses.
4. The leftover amount is taxable scholarship income on the dependents return.

That said, the easiest way to enter the scholarship income for your daughter is to add the 1098-T to her return but change the numbers. Enter zero for tuition and for scholarship, enter the actual taxable amount calculated from the steps above.

See: 

• Qualified Education Expenses - Internal Revenue Service
• 529 for Room and Board.

[ld1995]

Thank you-

Just to clarify..

I understand for our return to not include 1098T/1099Q as amount of expenses match with 529 withdrawals. 

The portion that I'm trying to clarify is the scholarship for child's return. The amount that was paid/withdrawn from 529 was the remaining tuition after scholarship.   For example: (using sample amounts)

Tuition cost 6500, scholarship amount $6000 - total paid (from 529) $500.  All other w/d from 529 were for R&B, supplies, etc.  So is any of the scholarship taxable in this scenario?

thanks!

[DMarkM1]

No, assuming on the 1098T the box 1 amount exceeds the box 5 amount there is no taxable scholarship.  Since you are not claiming an education credit and there is no scholarship income showing on the form, you do not need to enter the 1098t on either return.   Just be sure as @AmyC mentions that the use of the 529 funds is for qualified expenses (including room and board) and documented in your records.