TT is asking me to allocate $6K in taxable ESA distribution income between NC and MA. I took total Distributions of $19K against $4K in AQEE expenses for 2023.I lived in MA for the first 7 months and NC for the remaining 5 months of the year. $13K distributions were taken against $4K AQEE while living in MA and still attending college. $6K distributions were taken against $0 AQEE while living in NC (I moved to NC after graduation).The taxable income on the federal return = $6K which TT wants me to allocate between MA and NC. To make matters more complicated there were two separate Coverdell accounts making these distributions. How do I allocate the two distributions when TT only calculates it based on the entire year?

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Pip_12_mn

Question

How do I allocate taxable ESA distributions when I lived in two different states?

Forum|Forum|2 years ago
February 19, 2024
1 reply
0 views

TT is asking me to allocate $6K in taxable ESA distribution income between NC and MA.

I took total Distributions of $19K against $4K in AQEE expenses for 2023.

I lived in MA for the first 7 months and NC for the remaining 5 months of the year.

$13K distributions were taken against $4K AQEE while living in MA and still attending college.
$6K distributions were taken against $0 AQEE while living in NC (I moved to NC after graduation).

The taxable income on the federal return = $6K which TT wants me to allocate between MA and NC. To make matters more complicated there were two separate Coverdell accounts making these distributions.

How do I allocate the two distributions when TT only calculates it based on the entire year?

TurboTax Deluxe Online

Hal_Al

Employee

You'll have to manually calculate those amounts.

Example

$10,000 in educational expenses(including room & board which is only qualified for the 1099-Q)

-$3000 paid by tax free scholarship***

-$4000 used to claim the American Opportunity credit

=$3000 Can be used against the 1099-Q (on the recipient’s return) IN YOUR CASE, THIS NUMBER WILL BE $4000 ON THE $13K DISTRIBUTION AND $0 ON THE $6K DISTRIBUTION

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

There is $1120 of taxable income (on the recipient’s return)

Pip_12_mnAuthor

That helped but I think its more complicated in my case since I believe Box 2 and 3 changes when I calculate the taxable amount for the second distribution I took in the new state I moved to. Is my thinking wrong?

I had two ESA's which distributed a total of $19K in 2023 and generated two 1099-Q's:

ESA1 distributed $3K while living in MA while I had $4K AQEE prior to July 31, Box 2=$2K

ESA2 distributed $10K While living in MA while I had $4K AQEE prior to July 31, Box 2=$8K

ESA1 distributed $0K while living in NC while I had $0K AQEE after July 31, Box 2=$2K

ESA2 distributed $6K while living in NC while I had $0K AQEE after July 31, Box 2=$8K

On the federal return TT allocated 16% of the $4K AQEE towards ESA1 and 84% of the $4K towards ESA2:

ESA1 Distribution/Total distribution = ($3K/$19K) = 16% (AQEE attributed to ESA1 per TT worksheet)

ESA2 Distribution/Total Distribution = ($16K/$19K) = 84% (AQEE attributed to ESA2 per TT worksheet)

Does this complicate the picture becaue I took a distribution in MA before I took a distribution in NC, so the BOX 3 value would be different for each state, plus I have to allocate the AQEE between two ESA's and two States? It almost seems like I have to generate two 1099-Q's for MA and two new 1099-Q's for NC, each with their own box 1,2,3 amounts. Moving between states changed the earnings/basis calculations for each state. Maybe NC needs its own 1099-Q's (Box 1,2,3 amounts) as though it was a new tax year when I moved there?

The more I think about it, why not just allocate the taxable income according to the proportion of distributions while living in each state. Assume total taxable distribution = $7K

taxable MA income = $7K*13/19 = $4.79K

taxable NC income = $7K*6/19 = $2.21K