Yes, just don't report the 1099-Q.* The TT interview is complicated and mistakes are easy to make.
You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records**. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit (and you've done this already).
References:
- 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."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
** I took "Total tuition, room and board, books and supplies that we paid in 2024 were: $42,219" to mean over and above the 35,325 scholarship. 42219 - 4000 (for the AOTC) = $38,219 Qualified expenses for the 529 distribution. $38,219 is more than the $32,628 distribution. None of it is taxable or reportable.
