Yes, you owe taxes on the excess.
Yes, you can qualify for the AOTC, but only by paying more tax on the 529 plan (to free up expenses for the AOTC). This also assumes you were an undergrad and you (or your parents, if you were their dependent) did not claim the AOTC 4 times already (graduation year is usually the 5th tax year).
Provide the following info for more specific help:
- Are you the student or parent of a student
- If, student, are you the parent's dependent.
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Box 1 of the 1099-Q
- Box 2 of the 1098-Q
- Room & board paid. If you live off campus, what is school's R&B charge
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
