@NCperson - thanks again for posting valid references to tax code they help a lot! I agree the 'transfer' looks valid. TT does not lead us through this 'transfer' but we can achieve it using an 'override'. I wonder if using an 'override' also generates a 'flag' for the IRS? Now I'm thinking of upside/downside risks of using the 'override option' vs the 'not filing 1099Q option'. I'm leaning towards entering those override options and letting it rip! But the whole 'not enter 1099Q' is looking better and better cause when you ask you just send them all the information you have and let them make a determination. That is, if entering it is truly an 'at your descretion' as Hal AI and others have stated. Still note sure on that, myself.
@confusedrf
To me it looks like you are good to claim the AOTC and not owe any tax on your students form. You paid 18k total using a combination of 7k loan/cash and 11k 529.
18k - 4k to qualify for the AOTC leaves 14k paid...that is more than enough to cover the 11k 529 distribution.
I'd say you get the AOTC and pay no other taxes.
I think the reason you and I have a difference here is our kids income. My daughter exceed the 12,200 standard deduction so TT is saying the 529 earnings are taxable. They sit 'on top' of the earning from her job and are visible.
I think you said before your daughters job income is below that threshold. So even if TT is taking that whole 11k 529 (or, rather, the 'earnings' portion of that 11k distribution) and adding it to her income, if she is falling under the 12,200 standard deduction there is no tax (ie its not 'visible' to income tax). Now, if she starts working more...and next year you also have an 11k 529 withdrawal, then you'll be in my boat wondering why you can't shelter that money with your big-ass tuition payment!
Thinking more about the loan thing....once you borrow money, that is free for you to spend as you see fit. It is 'your money' at that point. If you spent 'your money' (or 'her money' if the load was hers) on tuition it's 'qualified expense'. I got confused earlier when you talked about 'loan payments'. To me the 'payments' are not relevant....you get to pay that loan back over whatever term you agreed to...perhaps long after college is complete. That's just my thinking on the matter. I think you are good. I just wouldn't think about actual 'loan payments' made, but rather expenses incurred and paid using your money (proceeds from a loan or cash)....in this case you used it for direct tuition payment to the college so its qualified expense.
