<p>My university creates one bill that includes tuition, fees, room and board, services, etc. Then, scholarships are applied and the remaining balance is left to be paid by you. You can't decide if you pay for tuition or room and board. I am sure a lot of universities to this. My question is how will the college decide what will be a qualified expense when they fill out the 1098-T, since room and board is not qualified. When I contacted my college, it seems that no one can tell me the answer to this! </p>
<p>The college will only include QEE on the 1098T. They know what is qualified and what isn’t. My kids get one bill with all you listed too, but the 1098Ts only have the QEE on them. The 1098T won’t include room and board. You should, however, always compare the 1098T with your bills and records of payments. </p>
<p>Is the QEE only based on your payment (excluding scholarships)? If so, how will they decide how much of your payment is allotted to room and board and how much is allotted on QEE? Basically I just want to know how much I will be paying in tuition that is qualified for tax benefits.</p>
<p>Either Box 1 will have the total amount you actually paid in QEE in the tax year or Box 2 will have the total amount they billed for QEE in the tax year. Most schools report in Box 2. The total of scholarships/grants received in the tax year will be in box 5. Room and board will not be on the 1098T at all. Presumably you will pay your full bill and it doesn’t matter how your payment is allotted. It’s just the total of QEE paid or billed and the total of scholarships/grants received. Now if Box 1 or Box 2 is less than Box 5, then the difference may be taxable income to the student. You can add the cost of required books and supplies to the amount of QEE the college shows. If you are expecting scholarships/grants greater than QEE then let us know, there is more people here can explain about the tax implications of that. For the AOTC you need Box 1 or Box 2 plus the cost you pay for required books and supplies to be $4000 greater than Box 5 for the maximum credit. If the difference is less than $4000, you, not the school, if the terms of the scholarships/grants allow, can allocate part of the scholarships/grants to room and board, declare that amount as taxable income, and then use that amount as QEE paid for the AOTC. Be sure to keep receipts for all required book/supply purchases.</p>
<p>IRS pub 970 chapter 1 has the details about taxable scholarships/grants and chapter 2 the details about the AOTC.</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>OK, thank you. So if I am understanding right, if your college uses box 2, you have an advantage because the amount would be larger than if they used what you actually paid (box 1), assuming you have scholarships?</p>
<p>No, the amount paid in box 1 would be what you paid for QEE out of pocket plus the amount of scholarships/grants applied to QEE. It should be the same as the amount billed for QEE would be in box 2 if all billing, crediting of scholarships and out of pocket payments occurred in the same tax year. The tricky part comes for spring semester, whether amounts are paid in December or January, as to how much QEE can be counted for 2014 taxes. If the school bills in December and uses box 2 and you pay in January, the 1098T for 2014 would show more QEE than you paid in 2014. But then box 7 would be checked. The 1098T is an advisory document to make people aware they may have QEE for tax credits. If your bills, receipts and records of payments for 2014 show different amounts than the 1098T you should go with your records and save all documentation.</p>
<p>The 1098T numbers often are incomplete or inaccurate, in terms of what counts as an eligible expense for the IRS.</p>
<p>FYI - The IRS just sent me a letter requiring me to document my 529 expenses for 2012. In response, I printed out the statements from the University’s website that listed everything I paid to them during 2012. I then provided a letter describing other eligible expenses that were not paid to the University, such as books. </p>
<p>Student loans can be considered to have been used to cover tuition in order to receive the federal American opportunity college tax credits. You need $4,000 per year of tuition expenses to receive the full federal tax credit, per child in college. However, you can’t double dip and count the same expense as being paid for from two different sources.</p>
<p>Remember it is easiest to keep all 529 withdrawals and payments for college expenses in the same calendar year. For example, when paying the Spring tuition expenses, it is best to withdraw your money and pay the tuition during December OR the following January, but not mix them up (such as withdrawing money in December and then paying tuition the following January). </p>
<p>It’s not easiest to take 529 distributions in the same year as the expenses are incurred, it’s required in order for the distribution earnings to be tax free.</p>
<p>"“If the difference is less than $4000, you, not the school, if the terms of the scholarships/grants allow, can allocate part of the scholarships/grants to room and board, declare that amount as taxable income, and then use that amount as QEE paid for the AOTC.”"
How would I allocate part of the scholarship to room and board if I don’t know what my scholarship is allocated to originally? In other words, I can move the part of my scholarship that is paying tuition into room and board, but how would I know how much is of it is funding tuition? </p>
<p>For the AOTC you can only count QEE not paid for by tax-free scholarships/grants. Scholarships/grants are tax-free when used for QEE, but not tax-free when used for non-QEE like R&B.</p>
<p>Simple example: </p>
<p>Tuition is $10k, fees $1k, books/supplies $1k, tax-free scholarships/grants $9k. There is $3k of QEE paid above tax-free scholarships/grants for the AOTC. To get $4k of QEE paid above tax-free scholarships/grants you allocate $1k of the scholarships/grants to R&B. Now there is only $8k of tax-free scholarships/grants going toward QEE. You have to declare that $1k as taxable, so it’s no longer tax-free. Now there is only $8k of tax-free scholarships/grants going toward QEE and now you have $4k of QEE paid above tax-free scholarships grants for the AOTC. Depending on your other income, you may not even have to file a return. If you are a dependent on your parent’s return, you still get a $6200 standard deduction for 2014 before you have to file or pay any tax. </p>
<p>Again, this is only if the terms of the scholarships/grants don’t specifically say they have to be used for QEE. Most don’t.</p>
<p>Ah, OK. And when is that you can allocate the scholarships? Is it part of the 1098T?</p>
<p>You do this when filling out your tax returns next spring. Your parents are the ones who can claim the AOTC on their return. If you need to make an amount of scholarships/grants taxable so they get the maximum credit, then you need to include the amount made taxable in your income. If you have that amount plus other income totaling $6200 or more then you would need to file a return and perhaps pay some tax. If you have had tax withheld from a job in 2014 you should file anyway to get that refunded. If you live in a state with an income tax you need to look into how the state treats educational tax matters.</p>
<p>Regardless you should keep all your college bills, book receipts and records of payment for documentation for taxes. Do your parents do their own taxes or do they have someone else do them?</p>
<p>Thanks for the help. My parents do their own taxes.</p>
<p>Then I would ask them about this and share the link to IRS Pub 970 if they don’t know about it.</p>
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<p>Perhaps it’s just semantics, but if by “incurred” you mean “paid,” than I believe this is correct. What’s important is to match up the 529 distribution and the payment of the expense that the distribution is meant to cover in the same tax year.</p>
<p>Assuming tax year = calendar year (as is the case for most people), if the school bills in December for spring tuition and the due date is January 15, it’s OK to both take the 529 distribution and make payment in January. Likewise, it would also be OK to both take the 529 distribution and make payment in December. Taking the distribution in December and making payment in January, however, would be a problem.</p>