There is no federal deduction for contributions to a 529 plan. Some states allow a deduction on the state return. If your state is one, it will come up in the state interview; usually in the "Here's how (your state) handles income differently" section. For a list, see:
http://www.savingforcollege.com/compare_529_plans/index.php?page=compare_plan_questions&plan_questio...
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If you got a letter from the IRS saying that your distribution, from a 529 is taxable; be aware that we're seeing this frequently (it happened to me, personally). Apparently, the IRS has created a problem by not having a form to report the situation where the taxpayer uses all the 529 plan distribution for qualified expenses. Even though you probably entered the 1099-Q in Turbotax, nothing about the 1099-Q went anywhere on the actual IRS forms.
You should reply to the IRS that it was all used for qualified education expenses. I attached a copy of my billing statement from the school and a copy of TurboTax's 1099-Q work sheet (which was not part of your original filing) and that took care of the problem (2-1/2 months later).
But be aware, you cannot double dip. You cannot count the same tuition money, for the tuition credit, that gets you an exclusion from the taxability of the earnings (interest) on the QTP. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion.
