AOTC the year a Student Graduates

Forum|Forum|3 years ago
February 18, 2023
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The last few years we have received the AOTC tax credit while my daughter attends college. I entered my 1098-T for the tuition and also a 1099-Q given we took money out of a 529 plan to pay mostly for room and board. This past year she graduated after the spring semester and got a job. The issue I see for this past years taxes is that I can no longer claim her as a dependent thus can not get the tax credit. It looks like the 1098-T will go on her taxes as she now claims herself so she should now get the AOTC or LLC credit. That seems fairly straight forward but now I am left with entering a 1099-Q for money we took out. It looks like it has to go on my taxes given the 529 plan is in my wife's name with my daughter as beneficiary. I then enter the room and board on my taxes which hopefully covers the amount we took out of the 529. Does this sound right ????

Not A Product Question

Hal_Al

Employee

Q. It looks like it has to go on my taxes given the 529 plan is in my wife's name with my daughter as beneficiary. I then enter the room and board on my taxes which hopefully covers the amount we took out of the 529. Does this sound right ?

A. Yes. When the beneficiary is not your dependent, there is a place in the 1099-Q interview to enter expenses. You do not have to enter info in the 1098-T section (which is more complicated).

But, better yet just don't enter the 1099-Q. It is only an informational document.

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

Q. It looks like the 1098-T will go on her taxes as she now claims herself so she should now get the AOTC or LLC credit?

A. Yes. Most likely the LLC. Graduation year is usually the 5th calendar/ tax year for undergrads. That means you most likely already claimed the maximum 4 times, for the AOC, on her education.

bnorma01Author

Thank you for the reply. I think I'll enter the 1099-Q just so its in my records. The first fall semester we did not claim AOTC because the amount was rather small given she had a bunch of scholarships so we/she still has a year on the AOTC. Also I think she is already getting a refund and AOTC is the only one of the two I understand will give an actual refund versus just credit. Turbo Tax should pick that one for us but I'll review it obviously. I was rather surprised/sad by the situation given I had adjusted my W-4 withholdings several years back to maximize the AOTC credit to get the full $2500 while I think she will only get the $1000 refund. If I had planned ahead I could have had her adjust her W-4 accordingly but that ship has sailed.