Thank you. I'm definitely claiming him as a dependent. I realize the 529 can be used for room and board. But room and board cannot be counted toward the AOTC. Only tuition and books and materials according to IRS publications.
I don't really have much out of pocket expenses. Maybe a little for books. But for simplicity I'm just looking at the tuition when related to the credit...which again was all paid with NC 529.
I'm looking at Publication 970, page 52, which discusses the 529 (QTP) in relation to the AOTC. I've included this small section below for convenience.
I'm thinking based on their example. I would use $4000 of the tuition paid by the 529 to use for me to get the credit. Then on my son's return , I would add income based on the taxable portion based on growth earnings. .....I think :).
I'm looking for validation here :)....but maybe I'm missing something.
Thank you.
From Pub 970 , page 52
Coordination With American Opportunity and Lifetime Learning Credits
An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses aren’t used for both benefits. This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, the beneficiary must further reduce them by the expenses taken into account in determining the credit.
Example 2. Assume the same facts as in Example 1, except that the parents claimed an American opportunity
credit of $2,500 (based on $4,000 expenses).
Total qualified education expenses ......... $8,300
Minus: Tax-free educational assistance ...... − 3,100
Minus: Expenses taken into account in figuring American opportunity credit .............. − 4,000
Equals: AQEE ........................ $1,200
The taxable part of the distribution is figured as follows.
1. $950 (earnings) × $1,200 AQEE/$5,300 distribution
= $215 (tax-free earnings)
2. $950 (earnings) − $215 (tax-free earnings)
= $735 (taxable earnings)
The student must include $735 in income (Schedule 1 (Form 1040), line 8z). This represents distributed earnings not used for AQEE.
