@Beccapooh88 Two different situations; two different rules.
1. You can NOT claim a tuition credit. The student must be your dependent to claim a tuition credit or deduction. But the student, can claim the credit, even though you paid the tuition.
2. If you have a 529 plan, where you are the owner and the student is the beneficiary, it is not necessary for the student-beneficiary to be your dependent, for you to claim the earnings exclusion.
But, you cannot double dip. you can not double dip. She cannot count the same tuition money, for the tuition credit, that gets you an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion.
Example:
$10,000 in educational expenses(including room & board)
-$3000 paid by tax free scholarship***
-$4000 used to claim the American Opportunity credit
=$3000 Can be used against the 1099-Q
Box 1 of the 1099-Q is $5000
Box 2 is $600
3000/5000=60% of the earnings are tax free
60%x600= $360
You have $240 of taxable income (600-360)
***Another alternative is have the student report some of her scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit
