Q. Can we also get the $4000 deduction for the AOTC in the same year?
A. Yes.
Q. When rolling over the savings bond into the 529 on line 2 of form 8815 it asks if we had any qualified educational expenses - what should I put in that line to reflect that?
A. The amount you rolled over to the 529 plan. The rollover, to a 529 plan, is considered a separate (from tuition, etc) qualified education expense.
You enter the 1099-INT (for the savings bond interest), in TurboTax (TT). You answer yes, when asked if it was used for education (still in the 1099-INT interview). When asked the name of your student's institution, you enter the 529 plan info* (not the school info). When asked the type of education expense, check the QTP ("Qualified Tuition Plan") box. When asked the amount of qualified expenses, enter the entire amount of the rollover (usually the full amount the bond was cashed for). Note: you enter nothing about the tuition paid in this section, or on form 8815. The funding of the 529 plan is considered an "education expense" for purposes of the savings bond interest exclusion.
Later in the education section, you will enter the tuition paid to claim the AOTC. It's not a $4000 deduction. You claim all your tuition, books etc. expenses to calculate the AOTC (a credit, not a deduction). $4000 is all that is needed to get the maximum $2500 credit.
In subsequent years, as you are planning to do, you can use the 529 distributions to pay for room and board, as well as tuition, books and computers.
Note: you must fund the 529 plan within 60 days of cashing the bond.
*Note box 1(b) on form 8815, where TurboTax will enter the 529 Plan (the "eligible educational institution") info.
