Using QTP money for Hope credit

[Gene V]

If a taxpayer takes money from a QTP (Sec.529) plan to pay for education. However decides to use the HOPE credit and pay tax on the earnings from the QTP.
Would this be possible?
The TTB 12-5, talks about claiming Hope credit the same year as tax-free distribution from a QTP, long as you’re not using the same expense for both benefits.

I’m talking about using all the money from the QTP for the Hope credit, then reporting
The earnings on Form 529 as none of it being use for education.

Same question, but using money for Tuition and Fees Deduction instead of Hope credit.

[BP.]

See pub 970, p. 55 for a good explanation of coordinating the two benefits.

You'll figure the eligible education expenses, then reduce that total by the amount of the expenses used for the Hope credit, and then apply the QTP distribution to any remaining expenses. Some or all of the earnings may be taxable.

http://www.irs.gov/pub/irs-pdf/p970.pdf

[Gene V]

See pub 970, p. 55 for a good explanation of coordinating the two benefits.

You'll figure the eligible education expenses, then reduce that total by the amount of the expenses used for the Hope credit, and then apply the QTP distribution to any remaining expenses. Some or all of the earnings may be taxable.

http://www.irs.gov/pub/irs-pdf/p970.pdf

I’m not at the office, but I think I read that, so, my conclusion is you can use all the money from the 529 plan for the Hope credit, and then claim the 529 earnings as income.

What I’m not sure about, can you do the same for Tuition and Fees deduction instead
of the Hope credit.

[BP.]

I’m not at the office, but I think I read that, so, my conclusion is you can use all the money from the 529 plan for the Hope credit, and then claim the 529 earnings as income.

What I’m not sure about, can you do the same for Tuition and Fees deduction instead
of the Hope credit.

T&F ded covered on p. 37-38 of pub 970. Just can't use the same expenses for the T&F ded that you use for tax free treatment from the QTP. Remember, probably only a prorated portion of the QTP earnings may wind up as taxable. Do check the pub on p. 55 for either the ded or credit, as it provides a nice formula for calculating any taxable portion of earnings from the QTP.

Barb

[LCP]

So in general ...........

First use as much of the expense that you need to qualify for the credit.

Then use whatever is left over to calculate the possible taxable distribution.

Correct?

[BP.]

So in general ...........

First use as much of the expense that you need to qualify for the credit.

Then use whatever is left over to calculate the possible taxable distribution.

Correct?

Well, in general yes, but your scene's a little vague to me. So do this . . .

Figure eligible education expenses.

Then, reduce those expenses by the amount used for a tax deduction or credit.

Then, apply the QTP distribution to the remaining expenses.

And, if your QTP distribution is greater then the remaining education expenses, there'll be a prorated share of earnings that are taxable.

Hope that helps!

[Earl]

HOPE Credit

I was just curious whether the education expenses were incurred by taxpayer or his dependent child and whose name the 529 plan was in.

[Gene V]

I was just curious whether the education expenses were incurred by taxpayer or his dependent child and whose name the 529 plan was in.

In my situation, the expense is incurred by the dependent.

From TTB 12-5
Distributions and Form 1099-Q
Who is taxed?
• ESA distributions are taxed to the designated beneficiary.
• QTP distributions are taxed to the owner unless paid directly
to the designated beneficiary or to an eligible institution for the
benefit of the designated beneficiary.