Since there are no numbers here it is hard to figure what the correct amount is in this example. However, I have run into a similar problem where I qualify for the AOTC and took a distribution from an ESA. What should happen is the qualified education expenses should apply to the credit first and then the ESA distribution. The example in chapter 7 on p54 of publication 970 under the subheading Coordination with American Opportunity and Lifetime Learning Credits illustrates this. Here is my example:
Total Qualifying Education Expenses: 8829.46
Scholarships <3710.00>
Adjusted Qualifying Education Expenses: 5119.46
Expenses Applied to AOTC <4000.00>
Expenses Available for ESA Distribution 1119.46
ESA Distribution 3343.00
ESA Distribution subject to Tax 2223.54 ignoring the tax basis for simplicity
However, Turbotax is calculating it this way:
Total Qualifying Education Expenses: 8829.46
Scholarships <3710.00>
Adjusted Qualifying Education Expenses: 5119.46
ESA Distribution < 3343.00>
Education Expenses available to AOTC 1776.46
Now perhaps I am missing an entry somewhere (and I have searched for this entry) that tells Turbotax how much of the ESA Distribution to use. Can someone please help me?
