1099-Q & 1098-T edu credit & non taxable?

[unzuetay]

Client received 1098-T Billed for 10533 with grants of 3250. Also received a 1099-Q with 8727. At first glance might seem like client would be taxed on the 1444 remaining of Q.

However seems like it is possible to claim $4000 in expenses and the rest as income for the student so her parent can take American Opportunity Credit. If so the income would not be taxable since the remainder went straight to the college instead of to the student.

Can I basically ignore the Q or do we need to show it somewhere either on the parents or the students return?

[taxea]

If the IRS got a copy of it then it has to be reported on the return.

[unzuetay]

Unless..

If the IRS got a copy of it then it has to be reported on the return.

I got the reasoning for not showing the Q from the taxbook 12-7 top of left column. Under who is taxed,

"The owner of a QTP unless the distribution was paid directly to the designated beneficiary or to an eligible institution for the benefit of the designated beneficiary."

Perhaps I misunderstood this?

[Roland Slugg]

There may not be any income to report. If your client's QTP is a "college savings plan," the distributions can be spent on room and board, books, and even things like a computer or an internet connection. Even some pre-paid tuition plans allow this, so check with the parents. Remember, the 1099-Q form only reports the amount of distributions from the QTP (i.e. 529 plan), and the 1098-T form only reports the tuition billed and or paid as well as scholarships and the like. The two forms are not coordinated with each other ... at all.

[mammondee]

There may not be any income to report. If your client's QTP is a "college savings plan," the distributions can be spent on room and board, books, and even things like a computer or an internet connection. Even some pre-paid tuition plans allow this, so check with the parents. Remember, the 1099-Q form only reports the amount of distributions from the QTP (i.e. 529 plan), and the 1098-T form only reports the tuition billed and or paid as well as scholarships and the like. The two forms are not coordinated with each other ... at all.

I agree. The calculations of coordinating a 529 distributions with a 1098-T with scholarships is never easy.....almost impossible. But here is a rough demonstration of how I do it.

First off....I will assume the amounts on the 1098-T were actually PAID in 2016...if not, you are really in for a big job.

Take the $10,000 1098-T tuition and fees....subtract the scholarships and grants. = $7,000 of qualified tuition and fees left for the Hope Credit....subtract $4,000 for the expenses claimed on the parents return using the Hope Credit. This leaves $3,000 of unused qualified tuition and fees. To this amount you can add room and board (but only that amount the particular institution includes in its "Cost of Living" for financial aid). You can find the amount with a little research on the institution's web site. This amount also varies depending on where the student lives....But let's just say the "qualified room and board" is $4,500. You are already back up to $7,500 of qualified education expenses for the 529 distribution.....now add any books, supplies, computers, software necessary for college, and internet costs......You will most surly have enough remaining qualified expenses to claim the entire 1099Q as non taxable. IF this is the case, nothing at all is reported on the return for the 1099Q. I would however, keep immaculate records of how I allocated the expenses, and good luck.

[Burke]

First off....I will assume the amounts on the 1098-T were actually PAID in 2016...if not, you are really in for a big job.
.

Never assume these billed amounts were actually paid. Get a school transcript. It's not a difficult thing. Most can be downloaded from the student's on-line account.