Education Credit Calculation - Incorrect Qualified Education Expenses

[ronaldcox]

When entering 1098-T (say $10,000 of Tuition and $2,000 of Scholarships) and 1099-Q data which shows $9,500 of total distributions, the additional costs (room and board of $1,500) incurred for which the 529 distributions were taken are then input into the "dependent student info sheet".  However, the system is still calculating the American Opportunity Credit for a portion of the qualified expenses.  Knowing we cannot double dip on education credits for which college costs were reimbursed from a 529, I would expect the overall credit amount to be $0.  However, the adjusted qualifying tuition expenses (line 20) at the bottom of the AOC Column do not automatically zero out even when I enter amounts into the cells further down the screen to manually adjust the amounts being applied to the ESA Part IX).   I would expect the amounts I have entered into one of the manual adjustment cells (2h of Part VIII or Line 18, column for "Tuition and Fees Deduction" to populate the Line 18 for "American Opportunity Credit " or "Lifetime Learning Credit".

Anyone have any advice or ideas on what check box, or data input, I am missing to fix this issue.  I know I should have no credit because all of the education costs were either paid out of the 529 or covered with scholarships as reported on the 1098-T.

[rbynaker]

The rules are fairly taxpayer-friendly in that you can pick and choose which education benefit gives you the most bang for the buck.  See Pub 970 page 61 example #2 (2020):

https://www.irs.gov/pub/irs-pdf/p970.pdf

AOTC is almost always better so you'll likely want to take the credit even if it means paying some tax on the 529 plan distribution.

Rick

[ronaldcox]

Thank you, but for now just trying to figure out how to get it into the Proseries system correctly.  I will be sure to keep that in mind going forward.

[Accountant-Man]

The default on the student college form is $10,000 for the "used for credit or deduction" even if you don't need it. Enter $0 and then all will be used for the 1099-Q calculation.