My D is a freshman so this is my first exposure to AOTC and 529 distributions. I have read applicable parts of IRS Pub 970 as well as some posts here. I have entered everything into Turbo Tax and I think it is selecting the right combination for education credits but I am checking here to see if anyone thinks otherwise.
D received full tuition scholarship. She is 19 and our dependent, and didn’t have alot of earned income this year.
We paid for fall 2014 and spring 2015 in 2014. On each school bill it showed each semester scholarship as a credit on each bill.
On the 1098-T it shows 29098 in box 2, and has box 7 checked. Box 5 has 14166 which is scholarship credit for only the fall semester.
In Turbo Tax there was a place to put in other scholarship and I put the spring scholarship there, 14031.
We took a 529 Dist to pay for Room and board and book, fees so we received the 1099Q, not my D. We didn’t think our income would allow any AOTC so we took the 529 Dist to pay for all of this. Later in the 2014 it looked like we may get some AOTC but we had already taken the dist and paid the bills.
Turbo Tax has a feature where it figures out the best tax scenario and it determined that indeed our income allowed partial AOTC (only 16%( so we got 365 back there. Room and board was 10622 and the 529 Dist was 13983 so we had an excess distribution of 3361. The 1099-Q showed earnings on the 13983 was 639, of which it determines 154 is taxable. Since we are in 25% tax bracket, this costs us 39 in additional tax.
Based on what I have read in Pubs 8863, 970, this all looks correct to me. I have read some older posts that said TT didn’t handle education credits easily, and although it took me a while to carefully read all the TT help, I think it is in there correctly.
I tried “forcing” TT to not take the AOTC and it resulted less of an excess 529 distribution, but since we didn’t get the AOTC credit, we would have more tax to pay.
Does anyone see any problems with the way TT or we entered this in?