Q. If a student is not a dependent but the parent is the OWNER of the 529 Plan and pays the college tuition, can the student still take an education credit?
A. Yes, if he's otherwise eligible*. It is not necessary that the student actually pay the tuition in order to claim the credit. But, the parent will have to adjust (reduce) the amount of tuition they claim for the 1099-Q to be tax free. You cannot double dip. Some of the earnings may become taxable on the parent's return. Room & board are also qualified expenses for a 529 distribution (1099-Q).
*There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit.
Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863
