Adjusted Qualified Education Expenses

[fasteddie577]

Are the Adjusted Qualified Education Expenses calculated by adding the total tuition and required books/course material, minus grants/scholarships?  I have provided an example below. Thank you.

Example:

Tuition: $10,000

Books/Course Materials: $2,000.

Total Grants/Scholarships: $8,000

Adjusted Qualified Education Expenses: $4,000

[MaryK4 · Accepted solution]

Yes, that is 100% correct,  Adjusted Qualified Education Expenses are the tuition and other fees less scholarships and other tax free payments.  See Determining Qualified Education Expenses,

[fasteddie577]

Thank you very much. 

[cliftstr]

My 1098-T lists the amount I paid the college which already has the "scholarship" amount deducted.  The "scholarship" was really just a tuition discount from the school and not from a 3rd party.  So the form seems in error to me if it's deducting the scholarship from the qualified amount.

Also, the amount that turbo tax calculated does not appear to relate to any of the numbers I entered.  My Total expenses on 1098-t were $26570 and the adjusted value is only 12236.   That's less than half.  The Box 5 "Scholarship" is $4334.

I took a distribution from 529 to cover the $26570 amount and turbo tax wants me to pay taxes on roughly half of that amount.

[TeresaM]

It is important to enter all the income, then the Form 1099-Q, and then the Expenses and Scholarships ( Form 1099-T) section. 

If it is entered out of order, the system may be reserving $10,000 in educational expenses toward an education credit, either American Opportunity Credit or Lifetime Learning Credit.  You may want to see if that leads to qualify for a credit, but if it does not, or if it will cause part of your 529 distribution to become taxable, then yes, it is fine to change that field to zero in the Education Information section of the screen below. This should free up those expenses to reconcile with the 529 distribution. 

If your school tuition was $26,570 and of that $4334 was a discount/scholarship, then that should be fine.   If the Box 1 number was already adjusted for the discount, then please check with the school and see if they will issue a corrected Form 1098-T.  You can file an extension in TurboTax that will give you until October 18th to file, although you should pay an estimate of any taxes owed when you file the extension. 

If room and board were paid from the 529 distribution, please go back through the Education Credit section and be sure those were entered.  That is not a qualifying expense for the Education credits but at least a portion can be used with 529 funds. 

[cliftstr]

I don't understand why line 2d in the Qualified Tuition Program Computation of 1099-Q is using $12236 instead of the $26570 that is box 1 from the 1098-T or at least the (26570 - 4334) Expenses minus scholarship from 1098-T.  How can I find the source of that calculation because it doesn't appear to be related to anything I've entered.

Thank you for your help

[TeresaM]

It is important to enter all the income, then the Form 1099-Q, and then the Expenses and Scholarships ( Form 1099-T section. 

If it is entered out of order, the system may be reserving $10,000 of educational expenses toward an education credit, either American Opportunity Credit or Lifetime Learning Credit.  You may want to see if that leads to qualify for a credit, but if it does not, or if it will cause part of your 529 distribution to become taxable, then yes, it is fine to change that field to zero.  

Your Box 1 less Box 5 less $10,00 for Education credits would give $12236. 

If room and board were paid from the 529 distribution, please go back through the Education Credit section and be sure those were entered.  That is not a qualifying expense for the Education credits but can be used with 529 funds. 

If this does not completely solve the problem, please let us know if you are using TurboTax Online or Desktop/Download, so we may better assist you with the education section.

[cliftstr]

I’m using the download premium.

I deleted the forms and reentered them in the order you specified. Same result.  Since I had started with entering the forms in the wrong order (which shouldn't matter) it's possible TT has latched the forms and I deleting them doesn't help.

The survey didn’t ask to go through the education section. 

I found and did that on my own and it doesn’t ask for any expenses at all because it says I don’t qualify for the credit.

So it’s really completely broken. It doesn’t care about offsetting 529 withdrawals at all beyond the 1098t.

My Solution is to do a manual override on 1099q form and enter my education expenses directly.  I hope this isn't a red flag.

Thanks for your help, but this has really shaken my confidence in your product, and I believe that Intuit may be liable for the excess taxes anyone in my position would pay due to this bug.  In my case this bug would cost me $2500.

[AmyC]

The override changes your return numbers and voids the accuracy guarantee but will not flag the IRS. 

I tried to find your numbers in reading through the posts but only saw $26570 for box 1 of 1098-T. I don't know your Q distribution , room and board, or other education expenses. I do know that the Q should not be entered unless it has a taxable amount. I find people enter the form when they should not and that will also throw off the program.

IRS Pub 970 states: 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.

@cliftstr 

[cliftstr]

Hi Amy,

I appreciate you continuing to respond and try to help me.

I find it a little aggravating that by using the override to fix a bug in turbo tax, it would be voiding an accuracy guarantee that Turbo Tax has already failed by virtue of my having to override a value that is clearly wrong.

Having said that.  I am unclear what I should do to get an accurate return.

My 1099Q shows these values in boxes 1-3:

1) $26904

2) $19254

3) $7650

None of those values are explicitly a "Taxable Amount"

The 1098Q shows

Box 1 $26570

Box 5 $4334

The box 1 amount must reflect only tuition because I paid $45k in tuition room and board after the scholarship adjustment.

Turbo Tax does not provide me a way to enter qualified expenses.  You have mentioned that repeatedly but I've not been able to get TT to ask me those questions, but the simple answer is 45k.

So, I am unsure if I should enter the 1099Q and then manually force the 45k value into the QTD worksheet, or if I should just leave all of these college disbursements out since I spent more than I withdrew and TT does not handle the data properly.

When I enter the 1099Q and 1098T, the 1098T value is reduced by 10k and reduced by the scholarship.  For my case, both deductions of the college expenses are incorrect.

I would greatly appreciate some advice on how to get TT to produce an accurate return for this data.

C-

[AmyC]

Okay! We do not want to override anything to void the accuracy guarantee.

Instead, work in the program, step-by-step section. It is good to know you are using the desktop program so you can see what is happening.

You paid $45k to the school of which $26570 was tuition. The rest was room and board and required fees. $45 - $26570 = $18,430 to be taken from 1099-Q.

1099-Q of $26,904 -the room, etc of $18,430 = $8,474 to be used on actual tuition. 1099-Q is used up. Do not enter, tuck in tax folder.

1098-T Box 1 Tuition of $26,570 was partially covered by the Q for $8474. Leaving $18,096 to figure out and allocate.

Box 5 scholarships $4334 comes off  $18,096 and you still have over $4,000 left for you to claim full AOTC credit.

Just enter the 1098-T as is and avoid the extra hassle. Keep this math and the  1099-Q in your tax folder. If the IRS asks, you will need to prove $4,000 was paid by you.

1. Go to federal deductions and credits
2. Select Expenses and Scholarships
3. Add the 1098-T or select Edit on the Summary screen.