Q.Is there any way to take the full AOTC?
A. Yes. Simply allocate $4000 of tuition to the AOTC. You do not have to allocate expenses to the ESA/529 first. That reduces that amount of expenses being allocated to the ESA/529, and some of it may be taxable.
What is in box 2 of your 1099-Qs? If you lost money, there should be no earnings in box 2 and there may be little or no potential for any part of the distributions to be taxable. Only the box 2 amount is potentially taxable, not the box 1 amount. But, expenses are allocated to the box 1 amounts, when doing the calculations.
Q. Can I use my total contributions as the cost basis?
A. Yes, if you've got the records to support it. You may have to adjust for past year distributions.
Airfare is not a qualified educational expense. For off campus living you may use the lesser of your actual rent and food cost or the school's "allowance for attendance" (basically what on campus students pay for R&B).
Q. For the expenses for 2023, I can not use the living rental fee for the first half of the year since she lived in school housing and I paid it at the end of 2022, so I guess it is not 2023 expenses?
A. That is correct.
Q. Maybe I should take LLC for 2024 tax year since 2024 has more expenses and AOTC for 2025 since it only needs $4,000.
A. That's a good plan to crunch the numbers to see which way is best. Books and course materials, including computers, are not qualified expenses for the LLC, but are for the AOTC. R&B are not qualified expenses for either credit, but are for ESA/529 distributions.
