You can roll over U.S. savings bonds into a 529 college savings plan by redeeming the bonds and depositing the proceeds into the 529 plan within 60 days. This is considered equivalent to using the proceeds for qualified education expenses. I'll assume you meet that rule.
Don't enter anything on line 3 of form 8815 because you have already decided that the amount on line 2 is what you want to claim for the savings bond exclusion. Any additional adjustment will come when you allocate expenses to the 529 distribution (if needed and they're not). The amount of the 529 distribution is irrelevant for the savings bond exclusion. What's relevant is what expenses you are going to allocate to the 529 distribution. You've decided only Room & board will go to the 529. So, there's no overlap of expenses to the bonds and the 529. No adjustment to expenses (on line 3 of form 8815) is needed.
So, that leaves $12,000 of Room and board, as the only expenses, for the 529 distribution. Unless you have some books and a computer to add. 12000 expenses / 21000 distribution = 0.57; 57% of the earning shown in box 2 of the 1099-Q are tax free. 43% are taxable. Most of it will also be subject to the 10% non qualified distribution penalty. Using $4000 of expenses, for the AOTC, is a partial penalty exception.
Here's the hard part of all this: Since some of both the savings bond interest and the 529 earnings will be taxable, it's it better to allocate more tuition to the bonds or the 529? I suspect that comparison may be easier to calculate by hand then in TT.
Does your student have any scholarships in box 5 of the 1098-T?
