Yes, just cap out.
If the entire amount of the 529 distribution was used for qualified expenses and/or returned the the account within 60 days of the refund (even if for different years), you do not need to report the distribution at all.
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!
