1099-Q

[Derf]

I have a client whose AGI is $195,000 plus. His daughter (dependent) is enrolled in college and received a 1098-T which reports $18,942 received and reporting $9,000 in scholarships. The spouse is the recipient of a 1099-Q with the daughter as beneficiary. The 1099-Q reports Gross Distributions of $32,504, Earnings of $15,461 and basis of $17,042. With a State Distribution. When all information is entered into system, the final result is because of the high AGI the 1098-T is phased out so that not education credits appear. while the 1099-Q reports the earnings as income. I have never in 20+ years of doing taxes have I run into such a problem. It seems to me if there is a1098-T involved that the 1099-Q does not kick in. Someone please set me straight so I can finish the return.

[BobKamman]

So the daughter is out about $10,000 in tuition, and the 529 distribution includes more than $15,000 in earnings?  

I wish I could help, but I convinced most of my clients to avoid 529 plans.  They were set up as loopholes for the wealthy to avoid estate taxes over multiple generations.  Seems to me, though, that only about $5,000 should be taxable.  And maybe less, if it was spent on other qualified expenses.  

[josephfolsomcpa]

If I recall, funds from a 529 plan can be used tax free for housing as well, not just tuition.