Lifetime learning credit

[confusedrf]

I do not seem to be getting a lifetime learning credit from my 23 yearold daughter who is a halftime student pursuing her master's degree.

It prompted me for the 1098T informatio first and I input it. It seems to have no interest in me inputting the 1099Q... it says there's no need for it.

My adjusted income is just above 135 K and i'm wondering if some phase out limit  has been met that I no longer qualify for  it.

I'm curious how that works if the max is 135K and I had instead made 134K.... how much of the credit would I have gotten on her $14000 worth of tuition that I paid for with a 529 plan.

[KrisD15]

The income limit for the Lifetime Learning Credit is

$90,000 or $180,000 Married Filing Jointly.

If education expenses are allocated to a 529 distribution, they would not also be allocated to a credit.

Some other details  that would need to be known include the numbers in Box 1 and Box 5 of the 1098-T.

Are you claiming the student as a dependent on your return?

To whom was the 1099-Q issued, you or the student. 

[confusedrf]

According to turbo's tax for whatever reason , she is no longer a dependent. Perhaps because of her income level being 30 .last year...? , i'm not sure why it says she cannot be claimed as a dependent. I'm not even sure if it asks for how much money she made. Or if that factors in. I do recall responding that she did not pay for at least half of her expenses living at home. I'll have to go back and look , I know she's twenty three and is a half time student pursuing her graduate degree.   I just know I put in the 1098T and immediately said 'we'll delete this for you'. . You're not getting it.  I tried putting it in the Q... it made no difference.

[CatinaT1]

Due to her age, she would need to be a full-time student or have income less than $4,700 for the year to qualify as a dependent. A dependent must meet the requirements of a qualifying child or a qualifying relative in order for you to claim them on your tax return.  I have listed the tests for each of those requirements below.

Since she is not your dependent, this is why the 1098T would be deleted.

As KrisD15 said, we would need additional details on the 1098-T. Your daughter could potentially qualify for the credit on her own return, however if all education expenses were paid for from a 529 Plan, there would be no out of pocket expense to use for claiming the credit.

The tests for a qualifying child are: 

Relationship: Must be your child, adopted child, foster child, brother or sister, or a descendant of one of these (grand or nephew). 

Residence: Must have the same residence for more than half the year. 

Age: Must be under age 19 or under 24 and a full-time student for at least 5 months. They can be any age if they are totally and permanently disabled. 

Support: The dependent must not have provided more than half of their own support during the year. 

Joint Support: The child cannot file a joint return for the year. 

The tests for a qualifying relative are: 

Qualifying Child: They are not the “qualifying child” of another taxpayer or your “qualifying child.” 

Gross Income: The dependent being claimed earns less than $4,700 in 2023. 

Total Support: You provide more than half of the total support for the year. 

Member of Household or Relationship: The person (a friend, girlfriend, non-blood relative) must live with you all year as a member of your household or be related to you. 

TurboTax software will ask you simple questions and give you the tax deductions and credits for which you are eligible based upon your answers. 

See also these TurboTax Helps.  

Who Can I Claim as a Tax Dependent? 

Rules for Claiming a Dependent on Your Tax Return 

[Hal_Al]

She cannot be your dependent for 2023.

She cannot be a "Qualifying Child" because she is not a full time student.

She cannot be a "Qualifying Relative " because her income is more than $4700.

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit. They are interrelated but the rules are different for each.

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...

[Hal_Al]

You cannot claim a Tuition Credit because she is not your dependent. She will be able to claim the credit, on her return. The LLC is a non-refundable credit, so it can only be used to reduce her tax liability (no refund). 

But the 1099-Q is a separate issue. 

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” ( the student ). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q. 
The 1099-Q gets reported on the recipient's return, if it even needs to be reported (usually it doesn't).

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip! 

References:

1. On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 
2. 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”.

[confusedrf]

Ahhh...so she must be a dependent for Life learning credit.  I think she was a dependentlast year  because she was considered a ft student graduating with her bachelor's mid year. 

So I guess there are no edu credits to take advantage of thus year.?

[Hal_Al]

Q. So I guess there are no edu credits to take advantage of thus year.?

A. Not on your tax return.  She may be able to claim it. 

[confusedrf]

Her?!?

Never put it one hers.  What are the stipulations for her.  She is a half time student., makes 30k, lives at home, NOT my dependent but it feels like it.....the T form will show tuition  of 14.5k...the Q will show the same amount..

SOMEHOW SHE MIGHT GET IT

?

[Hal_Al]

Q. Never put it (LLC) on hers?

A. She wasn't allowed to do that in the past, because she was your dependent.

Q What are the stipulations for her?

A . Is a student at an eligible institution.  Not a dependent.  Has qualified expenses.

Q. The 1098-T will show tuition  of 14.5k...the 1099-Q will show the same amount. SOMEHOW SHE MIGHT GET IT?

A. Room & board* (even if living at home),  books and other course materials, including a required computer are qualified expenses for a 529 distribution. You allocate those expenses to the 1099-Q, which frees up tuition for her to claim the LLC. 

 You could also  consider paying tax on some the 529 earnings, to free up more tuition for her credit.  You'd have to do the math to see if that's worthwhile. At $30,000 income, she looking at $1700 tax.  She would need to use $8500 of the tuition to wipe that out.  You only pay tax on a percentage of the earnings shown in box 2 of the 1099-Q.  A rough guess is about  25% of the box 2 amount will be taxable to you.

*For room and board to be a qualified 529 expense, the student must be half time or more. You may count the lower of your actual expenses or the school's "allowance for cost of attendance" for students living at home. 

[confusedrf]

No expenses other than what was shown and PaiD for on T /Q.

 Must I even enter these forms on her return? No room and board...and I do not want to pay any 529 tax to monkey with llc...

[DawnC]

No, in your situation, you are not required to enter anything (1099-Q or 1099-T) on your return, or hers.    There will be no tax credits, nor taxable income to either of you.   

[Hal_Al]

Q.  Must I even enter these forms on her return?

A. No. They are both only informational. If you know the 1099-Q is not taxable. Don't enter it. Same for the 1098-T; if you know you're not eligible for a credit and/or none of the scholarship is taxable, don't enter it.

But, everybody has food and shelter (room and board). For room and board to be a qualified 529 expense, the student must be half time or more. You may count the lower of your actual expenses or the school's "allowance for cost of attendance" for students living at home. 

[confusedrf]

...well we do feed her and she lives here....and I won't even mention my water bill!

But whose return would that go on... I believe I have already determined we are not eligible for LLC or anything...since she is only half time and no longer considered a depended , so i'm not sure the value of putting that on my return... How where would that go on her return...

[Hal_Al]

Q. Whose return would that go on?

A. The taxable portion of the 529 distribution goes o the "recipient's" (whose name and SS# are on the 1099-Q) return.  The LLC is claimed on her return, since she is not a dependent. There is no full time student requirement. 

But if you only reduce her tuition for the 1099-Q, by only the amount of the R&B, then you still do not need to file the 1099-Q. 

Q.  How where would that go on her return?

A. Form 8863. Enter the 1098-T at "education expenses and scholarships"