<p>You can amend your prior years’ tax returns if you didn’t get the full benefit of the AOTC because you didn’t include loan amounts.</p>
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<p>Yes, but you seemed to be saying you were using the school’s estimate for everything including tuition, fees, books.</p>
<p>From Chapter 8, IRS Pub 970:</p>
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<p>So the estimate you use needs to be the amount the school uses for off-campus housing, not a general estimate for r&b.</p>
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<p>Chapter 8 of Pub 970 shows this written out clearly.</p>
<p>Just a quick note to mention the IRS does exercise its right to ask tax filers to prove 529 distributions were used for qualified expenses. We recently received such a letter for the 2011 tax year. Fortunately we made electronic tuition payments in amounts that closely matched the 529 withdrawls…glad to have kept decent records.</p>
<p>I got one of those letters every year I took a withdrawal from our 529 funds. Every year I sent the IRS a copy of the COA and the 1099 from the University and disclosed any outside scholarships my kids won that year, and pointed out that the total COA exceeded the sum of the scholarships and 529 withdrawals. I never tracked the 529 withdrawals to tuition expenses because (for the reasons set forth above) I was using it for room and board expenses. They always accepted that.</p>
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<===== this!!</p>
<p>Many years ago I fell for the pitch and opened 529 plans for my boys. Sounds simple and great. Create an account and all gains will be used for college expenses and will be tax free. But then we had all these timing problems… tuition billed in December, paid in January, when should I pay it? Statement from the school doesn’t agree with my personal accounting leaving me with too many qualified expenses in one year and too much withdrawal in the next. The final indignity came when I was able to take all these fantastic high value education tax credits… which made my 529 plan withdrawals taxable! So why did I bother??? And through a few more tax code gymnastics I avoided the penalty on these withdrawals which were not used for education expense. What a load! Fortunately the 529 plans are all empty now, but I am sure it was a lot of fun for the IRS and the fund managers.</p>
<p>In spite of the rant, I think the concept is a good idea and parents should open 529 plans for their young children, especially in states that offer a state tax deduction for the contributions.</p>
<p>TurboTax is pretty smart about this. In fact, I created unnecessary work for myself at first, by thinking I needed to intervene to make it do the right thing, last year. But here’s what I found. If you just report all the 529 distributions and all the 529 qualifying expenses (room and board, etc.) and all the tuition etc. reported by the school on the 1098-T, then TurboTax will work it all out and do the right thing. Last year it automatically decided that my student needed to report about $1,300 of taxable income (out of the 529 distributions) in order for us parents to claim the full $4,000 AOC credit. Student didn’t have enough other income last year to even need to file, and there was no penalty because of offsetting scholarships. Easy-peasy.</p>
<p>When I wrote that I initially created work for myself, I meant that I’d anticipated that we should be able to report things to achieve the above result, so I tried to adjust figures I entered into TurboTax and figured the kid would need to file and report some other things. But TurboTax didn’t like that approach and I belatedly discovered that if I just played simple and entered all the correct information on my (parents’) return, TurboTax would get it right.</p>
<p>This post is reading like an advertisement for a particular brand of tax preparation software. It just happens to be the one I use. If I have no reason to think that competing products or human tax prep services aren’t equally capable.</p>
<p>Afterthought: So far, we’ve had all 529 distributions disbursed directly to the university. So they “really” went directly to pay room and board and tuition. This doesn’t prevent you from claiming some of those payments as taxable income instead. Likewise, you can disburse to yourself, but as long as it’s in the same calendar year as you made payments for qualifying expenses to the college, you can claim the disbursements as nontaxable.</p>
<p>annoyingdad - the school does not give an estimate based on “off campus housing”. There is only one estimate provided, and that is what I use.</p>
<p>“Yes, but you seemed to be saying you were using the school’s estimate for everything including tuition, fees, books.”</p>
<p>Exactly. I can’t use anything higher than the maximum. So that is what I used. I’m not sure if you understood.</p>
<p>I just looked at last years return, and frankly I don’t see how it is possible to take the AOC credit and also be eligible for an education expense deduction. Is that what you guys said you did?? </p>
<p>To weatherga - I DO use TurboTax. For years. I got the $2500 AOC credit. I don’t qualify for more because of income.</p>
<p>To washmother: “You can amend your prior years’ tax returns if you didn’t get the full benefit of the AOTC because you didn’t include loan amounts.”</p>
<p>It wouldn’t make any difference. The AOC maxes out at $2500 for me (actually my credit ended up at $1000 on the 1040 line 66), no matter what the cost. This is why I posted the question I guess…I knew something maxed out (couldn’t remember how it worked until I reviewed my 2012 return) and I was thinking that I will no longer get that credit because of the $4000 529 distribution. Or if I took out more, if I would be taxed. And honestly, I still can’t tell…can anyone answer that specific question? Or give me a precise formula to figure it out?</p>
<p>OKay - I added up the expenses for this year. Looks like we have $13000 in tuition, $6500 (possibly more) in room & board, and $1150 in books. So, if the 529 distribution ($4000) is in my son’s name, he will get that 1099, and will have to claim expenses to cover that much, right? So do I need to split the expenses between he and I so that I can take the AOC credit? Will I still be able to get an education/tuition deduction? I’m sorry that I am just not getting this…but the more I look at it the more confused I am getting! 
Now I am thinking that it was a mistake to get the distribution in his name. Everything recommended doing that, but it seems like it makes it far more complicated.</p>
<p>Qualified expenses for the 529 are pretty much everything. I don’t see where we have ANY expenses that are not “qualified”. Tuition, room and board, books, supplies. That’s it. All qualified.</p>
<p>Now I am reading this…</p>
<p>“You must remove from your total QHEE any of the tuition expense that is used to generate an American Opportunity tax credit or a Lifetime Learning credit. For example, if you claim a $2,500 American Opportunity credit on a federal tax return you must remove from QHEE the $4,000 in tuition and related expenses that was used to support the credit.”</p>
<p>So, if I use $4000 on my tax return, to get the AOC credit, and he uses $4000 of other expenses, to cover his 529 distribution, the rest (everything over $8k) goes on my return as education expenses??</p>
<p>VTmom92, you’re thinking the same as I was last year. Trying to split things myself didn’t work for me with TT, but putting it all on the parents’ return did, surprisingly, result in TT working out the correct splitting.</p>
<p>I think you’re overthinking this.</p>
<p>First, for a given student you can only take one of the AOC, Lifetime Learning Credit or Tuition and Fees deduction in a tax year, the AOC generally being the most valuable. But the AOC can only be taken in 4 tax years for a given student.</p>
<p>Since you said there are no scholarships or grants in the picture, you can claim $4000 of the tuition/fees/book expenses for the AOC. He can use the remaining tuition/fees/book plus the r&b to cover the 529 distribution. So there is room for him to take an additional 529 distribution provided it can be completed in 2013.</p>
<p>He doesn’t have to report anything concerning the distribution on his taxes unless there would be an over-distribution. He doesn’t have to ‘claim expenses’.</p>
<p>You don’t have to report anything about the ‘everything over $8k’ on your return. You don’t pay tax on educational expenses and you can’t get any additional benefit beyond the $4000 for the AOC.</p>
<p>weatherga - I can’t put everything on my return. The 529 distribution was in my son’s name, so it will be on HIS tax return.</p>
<p>annoyingdad: Thanks - yes I probably am over thinking. This is the first year that I took anything from the 529, and I had no idea that they made it so complicated.</p>
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<p>If all of the 529 distribution was for 529 qualified expenses, then there shouldn’t be anything (as far as the 529 goes) on anyone’s tax return.</p>
<p>VTmom92, I think weatherga was referring to how to enter info into a tax program. Just because something is asked for and entered into the program for a particular taxpayer doesn’t mean the program will put the info on that taxpayer’s return. </p>
<p>In your case, since there was no over-withdrawal, your son won’t have to report anything and all you need to do is claim the AOC on your return.</p>
<p>Oh okay, gotcha. I guess I misunderstood her post.</p>
<p>And I’ve used TurboTax for 13 years - I know that much. 
Heck I wouldn’t even consider doing my taxes without it.</p>
<p>So I have added up the entire 2013 expenses, (other than my son’s exact grocery costs - I estimated those based on the money I sent him). It’s a bit confusing this year because he was in a dorm in the spring, and an apartment in the fall, so the costs are a bit more complicated. But I came up with this. (These are just rough numbers here)</p>
<p>Total paid to college for the year: $15,000
Books purchased 1,000
Apt rent/utilites (Aug - Dec) 2,000
Dining/groceries/laundry 1,000</p>
<p>Total expenses $19,000 </p>
<p>So…all I need to show on my return, for the AOC, is that I paid $4000 of these expenses, correct? And on his return, you don’t enter ANYTHING? I mean, you do the calculation and knowing that he got a 1099 for 4k, and had expenses of (19000-4000)
, you just don’t enter anything. Is that right?</p>
<p>Correct. You enter the 4,000 on the form for AOC, and then keep all of the other info that justifies the 529 expenses in your own file in case the IRS later demands more information.</p>
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<p>I believe that you need to be able to show that you paid $4000 of Qualified Education Expenses, which for the credit means tuition and books out of the expenses you list. Room and board are not qualified expenses as far as the American Opportunity Credit is concerned.</p>
<p>FYI…just be careful about the figures on the 1098-T…here is the info I received from the bursar of my son’s college regarding the info on the 1098-T (was last year…just plug in current year to make it relevant today)</p>
<p>"As you know, educational institutions must report either payments received or amounts billed for qualified tuition and related expenses, but not both. We have chosen to report the amounts billed for qualified tuition and fees. With this method of reporting, the IRS instructs us to report the total amount billed during the calendar year. Box 7 on form 1098-T is a checkbox which is to be marked when the form contains qualified tuition and fees billed in 2012 which relate to an academic period that begins in January through March of 2013. This checkbox is the trigger to notify the IRS that payment could have been made in either tax year – 2012 or 2013. It is the taxpayer’s responsibility to provide payment records to support the year the tax credit or tax deduction was taken (if requested by the IRS). The IRS will allow a tax credit or a tax deduction in 2012 for payments made for a term that begins during the first three months of 2013.</p>
<p>The education tax credit or tax deduction is determined based on the date payment for qualified tuition and fees is made. It does not matter when the qualified tuition and fees were billed. Families must have their payment receipts and/or loan disbursement documents to support the date payment was made. Families should use the billing information contained on the 1098-T form in coordination with their payment records to accurately calculate their tax credit or tax deduction. </p>
<p>We billed spring semester in December because many families need time to budget. Additionally, many families have determined they can receive a larger tax benefit in 2012, for example, for paying the spring tuition in December. We want to provide that option to families. Those who want to wait until 2013 to remit payment can do so with no negative tax consequences."</p>