I’m not sure what you’re asking here. Can you ask it in a different way?
ok. So he would need to get something in writing for the computer. this is a repeat of a previous question but I understand room and board can be used to offset florida prepaid distribution to reduce the tax from fl prepaid. Can that be done if the room and board was paid by a scholarship and not fl prepaid?
For example, Fl prepaid distribution was $2K, my basis is $1,200 and the earnings is $800. In order to not pay taxes on the $800 I need to offset the distribution of $2k. Can I use room and board for that? I know I can use the laptop for this year but thinking for future years.
I don’t know much about the Florida pre-paid, but you’ve already received the tax benefit by using it for tuition and fees. I’m highly doubtful that you can get another tax benefit, for room and board paid with scholarships, based on the $2,000 of Florida pre-paid money that was spent on something else.
Well the earnings from the FL prepaid should not be taxable because it was used for tuition, you said it had to be used for tuition.
FL prepaid has several plans. You can buy just tuition for 4 years, 2+2 with 2 at a community college then 2 at a 4 year, you can buy a 1st year housing plan, etc. It’s a 529 plan except that it is guaranteed to cover the cost even if tuition has risen too much since you first purchased it. The early plans also covered fees while later plans do not and we’re getting to the years when those early plans are running out.
You don’t have to use the prepaid if you prefer to use other (non-529) funds. That’s becoming more common since this year bright futures top award covered tuition
If you do use prepaid, there is a certain order the schools will post the funds in, and I think it is prepaid first (for tuition and fees), then other awards and BF last because it is refundable to the student.
Thank you all for the replies. Sounds like I will claim the AOTC on my return for the books we paid out of pockete. My son is looking for documentation for the class requiring the laptop. As for the Florida Prepaid 1099 q, if my son claims the taxable earnings of $900 as income then I think he can use the $2,000 from the fl prepaid distribution to offset the scholarship income. Does anyone disagree with that? He could use the $2,000 in tuition to offset the entire fl prepaid earnings but doing it the other way provides an additional $1,100 to offset scholarship income.
I think the college would have to require the laptop as condition of attendance for it to count.
https://www.irs.gov/newsroom/american-opportunity-tax-credit-questions-and-answers
^(See question 7)
Be careful claiming AOTC for anything you are not sure qualifies.
If the AOTC was claimed incorrectly, it may be disallowed in future years.
If your Florida prepaid plan can be used for anything else but tuition, you might be able to free up the $2,000 tuition expense to be claimed for AOTC as well.
Your son needs to report the $9,000 of taxable scholarship on his return, because unqualified expenses were paid with it.
He will get a standard deduction of $6,350 that will apply to his total income of $12,000, and the net unearned income of $5,650 will be subject to form 8605 to calculate kiddie tax.
Parent taxable income from form 1040 will be needed for kiddie tax calculation so you will need to complete your tax return before your son’s.
Right, but page 15 of pub 970 states that the amount claimed as non qualified expenses can’t be more than the actual non qualified expenses paid. Since he would need to claim the $9k as income this amount is not more than his non qualified expenses. At least I think I am reading that right. That section has to do with converting scholarship funds to taxable income in order to take the AOTC.
does that sound right to you?
Yes, well if they gave him a $4,000 refund, after paying for $5,000 room and board, what did he use that money for? Computer, dorm supplies?
Usually the COA has allowances for personal expenses, transportation, etc.too
Those would also be nonqualified expenses.
If he got a $9,000 scholarship and didn’t have qualified expenses to reduce it, then all of it should be taxable.
You could use the books to offset some of it, and have him report $8,500 taxable, but getting a $500 AOTC might be more valuable than whatever tax he has to pay on the scholarship.
I don’t know the rules about FL prepaid. But was that account set up by him, and invested by him, is he the owner?
If not, wouldn’t you have to report the taxable amount on your return?
You are trying to offset the taxable amount of scholarship, when the tax rate will be your highest marginal tax rate, applied to the $5, 650 net unearned income.
When you could get $2,000 more in AOTC instead, if you can use it for tuition.
But you cannot double dip.
1.Either use the FL prepaid for tuition, then none of the earnings are taxable.
And then use $500 books for AOTC, and report $9,000 scholarship as taxable.
2.Or claim $2,500 for AOTC for tuition and books.
And pay tax on the FL prepaid earnings.
And claim $9,000 taxable scholarship.
3.Or claim $6,500 taxable scholarship, and pay tax on FL prepaid, and claim no AOTC.
I think scenario 1 will probably the best, tax wise.
If the Florida prepaid is submitted directly to the school, I don’t think you have the choice of using it for anything other than the tuition and fees. It’s the exact amount, not an amount you direct to be paid like with another 529 account. If you want to withdraw the florida prepaid as a 529 account, it is a different procedure (if you are using it to pay another school, for example, or a private school in Florida).
Any taxable amount would be attributed based on to whom the payment was made. If the payment was made to the student or the school, it would be taxable to the student. If the payment was made to the account owner/parent, it would be taxable to the account owner/parent.
Correct, my son is the beneficiary and I am the owner, as Belknap said he would pay tax on the earnings portion of it.
2.Or claim $2,500 for AOTC for tuition and books.
And pay tax on the FL prepaid earnings.
And claim $9,000 taxable scholarship
regarding this option that Mommdc wrote. This is what I am not sure I can do because of page 15 in Pub 970. If he claims the $9k in income that means he needs to have $9k of unqualified expenses based on what it says. To answer the question Mommdc, with his refund of $4k he paid for food which was probably around $2k. The cost of the dorm was already deducted when he was refunded $2k. So essentially, he made a little money because the refund was $4k and food was $2k. Are there are non qualified expenses he can apply to that? Is there a link someone may be able to share that goes over how to calculate.
I am coming up around $2k short on non qualified expenses after I use dorm, food and the laptop. is there anything else that can be used?
He got $9,000 in scholarships. If he did not use it on qualified expenses, that money is taxable.
Nonqualified expenses can be room, food, transportation, gas, insurance, computer, toiletries, laundry, football tickets, anything that is not qualified.
You can also not claim AOTC for books and report only $8,500 in taxable scholarships.
If FL prepaid paid for tuition, then how were fees paid?
Let me ask this question to see if I am looking at this right. The FL prepaid was strictly for tuition, putting all things aside one can claim the earnings portion and take the tuition distribution as an AOTC credit. If anyone disagrees let me know. Since he has to report the $9k in scholarship as income regardless is it really considered converting that $9k scholarship to income? According to IRS you have to have unqualified expenses that you actually paid that is at least equal to the amount you are converting to income, but in this case is it really considered converting to income? The Fl prepaid was for tuition and instead of offsetting the prepaid earnings he will pay the earnings and I will take the AOTC.
In other words, he wouldn’t be converting the $9k to take the AOTC, he would only be reporting the fl prepaid earnings to take the aotc.
That clause might refer to someone who has scholarships covering most of their expenses. And in order to claim AOTC those scholarships are declared taxable.
But if you don’t claim AOTC, will it matter how much in non qualified expenses he had?
It comes down to the fact that he received $9,000 in scholarship and had no qualified expenses left to offset it, except books, but then you cannot claim AOTC for the books.