closing 529 accounts

Hi

In Dec 2007 I opened two CA 529 accounts for my kids. I funded each with

22,000 for a total of 44,0000 at that time.

In Sept 2009 I asked them to close the accounts and send the funds back to me. So in Sept I received about 16,400 from each account.

I have now received two 2009 1099-Q forms from the payer Each show box 1 16000 (not giving exact amounts on newsgroup) box 2 -5000 box 3 22000 box 4 box 5 state checked box 6 checked

The initial (and only) funding was from my after tax money. Do I simply use -5000 as negative income for 2009?

-Antony

Reply to
Antony
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The 1099Q is wrong as Box 3 is always the sum of Boxes 1 and 2. If you contributed 22k (your basis) and received $16K upon liquidation, your deductible loss is $6K. You combine this loss with the losses or gains on any other QTP to arrive at the total deductible loss. You stated that there were two QTPs liquidated and the losses were the same.

2 x 6 = 12K loss.

You deduct this 12K loss on Line 23 of Form 1040 Schedule A only if you itemize deductions.

Reply to
Alan

The IRS is not that generous. From publication 970, chapter 9

Losses on QTP Investments

If you have a loss on your investment in a QTP account, you may be able to take the loss on your income tax return. You can take the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Your basis is the total amount of contributions to that QTP account. You claim the loss as a miscellaneous itemized deduction on Schedule A (Form

1040), line 23 (Schedule A (Form 1040NR), line 11), subject to the 2%- of-adjusted- gross-income limit.

If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc.) from all such accounts in order to determine your taxable earnings for the year. By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts.

So the $5000 loss appears on Schedule A. But only the amount above 2% of your AGI is deductible (so only this reduced amount appears on Schedule A), although other items like tax preparation fees, un- reimbursed job expenses, financial management fees are part of misc itemized deductions. If you are in AMT, this deduction is not allowed at all.

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