@Carl - sorry but the math isn't making sense
if I think about this as 'sources and uses"
1) there were $62k of sources - the $37k from the 529 distribution and $25k from the scholarships
2) there were $62k of uses - $45k for tuition, $15k for room and board and $2k for books
the net is zero and there is no need to report the 1099Q.
same situation, but now AOTC is included:
1) there were $66k of sources - the $37k from the 529 distribution and $25k from the scholarships and $4000 for AOTC (which yields the $2500 credit)
2) there were $62k of uses - $45k for tuition, $15k for room and board and $2k for books
3) therefore $4000 of the 529 distribution was not required meaning that $4k/$37k or 10.8% of 1099Q / Box 2 is taxable. I'd certainly pay tax on the 10.8% to get the $2500 credit!!!!!
if I look closely at your math it appears the scholarship was used twice. first, it was netted against the $45,000 of tuition (to yield the $20,000) and then later it was declared a 'source' as part of the $62,000 when it was already netted out of the figures to compare to the $52,000- hence it was used twice. also, the student did not have $37,000 of qualified expenses - it was $62,000 (tuition = $37000, room and board = $15000 and books = $2000); that $37,000 off the 529 is a 'source' and not a 'use'. If I remove the extra $25,000 from the duplicate scholarship "source" and reflect the additional $15,000 of qualified expenses which is a use that brings the income of $10,000 you originally presented back to zero.
hope this brings some clarity to the subject.....
