Why isn't TT Calculating AOTC to Fully Offset Total Tax?

Forum|Forum|4 years ago
January 23, 2022
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I'm using TT Deluxe 2020 desktop. Student (under 24) has a combination of W-2 income, 1099-MISC, 1098-T (with partial scholarship), and 529 distributions. The 1040 is showing a tax before credits of $1,990 which is then offset by AOTC for a resulting tax liability of $222. I don't understand why it is not being reduced to $0.

1040 Line 1 Wages Income 18,014
1040 Line 8 Other Income 12,617
1040 Line 11 Total Income 30,631
1040 Line 12 Standard D 12,400
1040 Line 15 Taxable Inc 18,231
1040 Line 16 Tax 1,990
1040 Line 20 AOTC 1,768
1040 Line 24 Total Tax 222

I have attached a screenshot of the Student Info Wks, Part VI. I know this portion of the worksheet is very complicated and that line 18 is murky at best. It appears to me that TT is somehow trying to optimize everything and is choosing line 18 to be $6478 so that line 20 winds up $1768. But since my Tax tax before credits is $1990, why doesn't TT use a different value on line 18 to result in $1990? That would result in a total tax of $0.

I know the student is not eligible for refundable AOTC, so not looking to use a $4000 adjusted qualified expenses for a $2500 credit. But I think TT should use $1990 for adjusted qualified expenses?

Best answer by Hal_Al

Q. But since my Tax tax before credits is $1990, why doesn't TT use a different value on line 18 to result in $1990?

A. It's not sophisticated enough to put the AOTC ahead of the 529 exclusion, in the case of a student, with a 529 distribution, claiming only the non refundable portion of the AOTC. It's a rare situation.

Hal_AlAnswer

Employee

Q. But since my Tax tax before credits is $1990, why doesn't TT use a different value on line 18 to result in $1990?

clobber88Author

I'm not following your answer.

1040 Line 20 is 1768

Sched 3 Line 3 is 1768

TurboTax is telling me it is using AOTC (not LLC) for 1768

Please explain the AOTC math as I have been through Pub970 multiple times. While it does say, "Also, the nonrefundable part of the credit may be limited by the amount of your tax," I am not seeing any examples where that is taken into account.

You did hit on another point. I don't understand how to make TT shift the 529 expenses.