You may lose the credit, but you would not be entitled to the credit since you took a distribution from a 529 Plan that covered the tuition costs. The key to whether to report or not report the 1098-T and the 1099-Q is whether or not the amount of Box 1 of the 1098-T after deduction Box 5 is equal to, less than, or more than the 1099-Q. If the 1099-Q is more than Box 1 less Box 5, then the excess is reportable as income. However, if you have documentation that qualified education expenses exist to cover the excess amount, then you would not want to report the 1099-Q and 1098-T on your return and just keep the documentation with your tax records.
If the amount of the 1099-Q and the 1098-T are equal then there is nothing to report. Room and Board and books, etc. cannot be used for the education credit.
Finally, if the 1099-Q is more than Box 1 less Box 5 of the 1098-T you would want to enter the documents as you could be eligible for the credit.
Keep in mind when evaluating what is the best course of action on Form 1099-Q, instructions to the recipient read: "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."
As for the 1098-T, there is no reporting requirement if you are not eligible for the education credit. You cannot use 529 Plan funds and take the education credit unless your tuition expenses end up being in excess of the amount taken from the 1099-Q.
I realize that this is very confusing and I have attempted to give you some scenarios and how the 1098-T, 1099-Q, and the tuition credit would be calculated. AOTC can only be used for tuition and that is why Box 1 and Box 5 of the 1098-T are the critical factors in the computation. If there is an excess amount with the 1099-Q you are obligated to report that as income.
