1099Q loss - distribution not used for tuition

[schirallicpa]

Client had put money in 529 years ago, with before tax money. Doesn't remember any benefit tax-wise for making contribution. Regardless, has taken money back out, but not for tuition. 1099Q shows a small loss. I'm finding info telling me to report this loss as misc item deduct, but I think that's only after the proceeds are used for tuition. Since it wasn't treated by the client for tuition, then does it get reported on Sch D as just an investment that lost a little money?

Thanks.

[Lion EA]

Misc 2%; although does he have to wait until all monies have been distributed?

[kcjenkins]

No, it's treated the same regardless if some was used for tuition. And 529 contributions were after-tax, not before-tax. No deduction for making them, just the income sheltered. Since he lost money, there is not taxable income to pay tax on, and the loss from basis is a Sch A item, by law.

[schirallicpa]

No, it's treated the same regardless if some was used for tuition. And 529 contributions were after-tax, not before-tax. No deduction for making them, just the income sheltered. Since he lost money, there is not taxable income to pay tax on, and the loss from basis is a Sch A item, by law.

Thank you so much! BTW - in NYS we get a deduction for contributing to 529s.......

We also get governors who use our money for their own play time, but that's beside the point.

[kcjenkins]

Yes, some states do allow deductions for them, but the Feds don't. It's still a good way to build up a college plan, if you start early. I expect the majority of them are set up by grandparents, from my experience.