<p>Around December 28, I did a practice run on my 2012 taxes and realized that since I'd paid all of my DD's tuition (about $21K) using her 529, I may not be able to take the American Opportunity Tuition Credit(AOTC). I had paid her room and board by check, but I do not think R&B qualifies. If it matters, about $16K of the 529 funds were against the "basis", the remaining $5K was appreciated gains. Her 1098-T only shows that I was billed for the 2012 tuition of course. </p>
<p>So I quickly wrote a $4000 check (to max out the AOTC) against her Spring, 2013 tuition bill that was showing online, and mailed it ~December 30. The check cleared around January 10. I believe the $4000 paid qualifies me to take the full AOTC, but I am not sure how to reflect this on my taxes since the 1098-T does not reflect this amount. Turbo Tax is letting me take the deduction as is, because it apparently does not check carefully whether a 529/QTP was used, but I am concerned that an audit would raise this question, and I want to be proactive about filling out my return correctly. </p>
<p>I have another question but I'll stop here for now...any advice appreciated!</p>
<p>For 529 withdrawals (but NOT for purposes of the AOC or other educational tax credits or deductions) , room and board are eligible educational expenses as long as the student is enrolled at least half-time. The relevant portion of Pub. 970 is section 8, “Qualified Tuition Program” (which is what the IRS calls 529 accounts) which begins on p. 55 of the 2011 version: <a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>I’m not positive but AFAIK, unlike the filing of tax returns where the <em>postmark</em> date matters in terms of meeting the deadlines, for purposes of educational tax credits/deductions what matters is when the payment (whether it is an amount paid by you or the amount of a loan) is credited to the student’s account.</p>
<p>Thanks MC2! I had read Pub. 970 cover to cover, as well as a very lengthy SavingForCollege thread with lots of input by Joe Hurley. My head nearly exploded, and most of the people on the thread indicated they needed a drink! </p>
<p>Based on the input that perhaps I sent the check in too late, it looks like your other point is more relevant. If I claim the AOTC, I may only owe tax on the earning portion of the 529 (I just re-checked and it is actually only $3,600) - so 10% is $360, and since my daughter only had $350 of income, then no tax would be due. </p>
<p>So bottom line, should I just take the tax credit, and if audited, the IRS would see that no added tax is due?</p>
<p>This is from IRS pub 17, page 143. It is talking about which year to count medical payments as being made. However, I believe that the principle of when to count a check as payment is the same for all payments for all tax items. This is for those using the cash accounting method for taxes, which is what virtually all individual taxpayers use.</p>
<p>“What Expenses Can You Include This Year?
You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment.”</p>
<p>So if you dropped the check in the mail in 2012 I believe it is considered paid in 2012 regardless of when it was credited to the account. Keep the cancelled check. </p>
<p>The 1098T is more of an advisory document because of inconsistencies between December of one year and January of the next and because it only includes expenses and scholarships billed or credited by the school. Actual bills/account statements, cancelled checks, receipts etc. are much better as docmentation.</p>
<p>As for TurboTax, if you go through all the questions regarding 1098T, 529 distributions, other amounts paid for education not shown on the 1098T etc., TT will figure things out correctly. TT will check 529 distributions and other education expenses/payments thoroughly if you answer all the questions with the correct answers. That’s the hard part though.</p>
<p>In terms of the postmark issue, it may be worth asking Joe Hurley (or someone else who is VERY knowledgeable about financial aid and other higher education tax issues) that question. Someone on another thread here did say that if a parent mailed the check before the end of the year it would count as a 2012 payment. However I’ve done a ton of reading on all the education tax issues, and I’ve never seen that anywhere. The IRS publications say that the date the payment (check or loan) was credited to the account is what matters.</p>
<p>Isn’t it GREAT that any tax from excess 529 withdrawals goes on the kid’s return?? Because in so many cases this means that NO tax is owed, or at most only 10% and only on the earnings portion.</p>
<p>In terms of your bottom-line question, yes, you should be cool if you take the credit. And if you paid more than $4k for R&B in 2012 you can legitimately say that 529 funds were used for that and $4K of your money went toward tuition/books and not even have to think about the whole “taxes owed on the amount of 529 earnings” thing to put on your daughter’s return! The school will not have kept track of which of your payments went toward which, since it likely all shows up on one bill – all they care about is that the total amount due gets paid!</p>
<p>My previous post cross-posted with annoyingdad’s post.
annoyingdad - thanks! You’re very probably correct in terms of the whole mailing date issue. </p>
<p>Mailing payments at the end of the year could be a pretty big hassle if one was audited, since account statements would be all out of whack, showing the payment in the next calendar year. Saving cancelled checks (or copies, these days) would be the way to go.</p>
<p>It drives me crazy that our tax code and descriptions are so complex that it is almost impossible to be accurate and confident </p>
<p>Anyway, I think between the post-mark, the 10% penalty on kids taxes, and the room and board payment (paid for rent and allowance, not dorm expenses) - I feel I am triple covered and above board, so good to go, i think. </p>
<p>I have another AOTC-related question or two, but will start a new thread for that.</p>