NC - thanks for the reply. I'm not complaining about $500 more in credits, believe me. I just want to make sure that I'm entering it the right way to avoid my return incorrectly claiming more than is due.
One question I do have is your point about there being $17,500 remaining in expenses. My current understanding is that the AOC counts the first $2000 dollar for dollar against my out of pocket expenses, but the remaining $500 is credited at a 25% rate, so I actually need to have $4,000 in out of pocket to claim the full $2,500 in AOC. Is that not right? The way I'm interpreting what you wrote, it would seem that it would only take $2,500 in out of pocket expenses to realize the full $2,500 AOC credit.
If my understanding is true, it would seem that instead of $500 being non-qualified, it would be $2,000 and I'd pay taxes on the earnings portion of that $2,000. And TTax will calculate through the optimizer which is the right way to go to maximize my taxes - either claim the full AOC credit and allow some of it to be considered non-qualified and taxable or claim a lower AOC credit.
This is my first year dealing with these college expenses so I'm still very much learning!
