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First time W/D from 529 and implications for American Opportunity Credit

I was using TaxAct and got to the part of education expenses. The student is my son. It asked me for all of his expenses and categorized them as qualified and not-qualified. So far so good.

Then, it asked who received the 1099-Q's. Since the W/D's were paid directly to the school, the 1099-Q's were sent to my son. I understand this to be correct.

However, when I told TaxAct that my son received the 1099-Q's (instead of myself), TaxAct didn't ask how much the W/D's were for. I thought the American Opportunity Credit computation needed to know these amounts, in order to offset the expenses upon which the credit is computed. Am I correct?

Reply to
gindie
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You have it backwards. The amount of qualified expense used to compute the AOTC can not be used again to compute the tax-free component of a

529 distribution that contained earnings. If there were no earnings in the 529 account, then the distribution is merely a return of principal and no calculation is required.

See IRS Pub 970 in the chapter on QTPs. Specifically, the section that deals with coordination with the AOTC.

Reply to
Alan

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