Thanks for your reply, but I don’t think your reply applies to my case or my concern.
Let me clarify that the Tuition for Special Education expense for my dependent far exceeds the $10,000 of the 529 distribution. I only withdrew $10,000, because that’s the most I can withdraw in any tax year for a qualified High School expense without a penalty.
In your example, you have “$8,000 in educational expenses (including tuition qualified Medical )”. Although the tuition qualified medical expenses that I have far exceeds $10,000, I’ll just plug in $10,000 into your example, which would result in 0% taxable and no penalty. Any expense greater than $10,000, which is applicable to my case, would have the same result.
Since the High School tuition is both a qualified education expense and a qualified medical expense (i.e. Special Education), my concern is to determine how much of the tuition I can now claim as a medical expense and ensure there is no double-dipping in my return. Since, the cost basis (block 3) of the 1099Q was contributed after taxes, I believe I should only reduce the tuition I claim as a medical expense by the earnings (block 2), which have not yet been taxed. I’m looking for reasons why I should also include the cost basis in medical expense reduction, allowing those funds to be taxed a second time.
