Thanks for sticking with me.
1) Oops, you're correct - it's going to take $11,000 of expenses to wipe out $11,000 of his distributions, which will then eliminate the additional $4900 of unearned taxable income.
2) Yes, thank you - my shorthand version was so shorthand that it mischaracterized what's really going on.
3) Earlier you said: "The AOTC is 100% of the first $2000, even when it's not refundable. The taxable portion of a 529 distribution is unearned income. As such, it is subject to the "Kiddie tax" and he only gets a $1300 standard deduction." I interpreted that to mean that if the kiddie tax is in play his standard deduction drops to $1300. Now it sounds like that's not the case. In what scenario does his standard deduction drop to $1300?
It sounds like having him file with $2600 in unearned income is the way to go, given the circumstances.
I don't expect it matters, but in case it does: All payments made to the university were for tuition and fees only. He lives on campus but his room and board are waived because he's a resident assistant. He also receives a very small stipend as part of the RA arrangement, and he makes a little bit more money giving campus tours. The W-2 he received certainly covers the tour guide work; I'm not sure whether it also includes the stipend, but if it doesn't I don't think I care because we haven't gotten any other sort of 1099 from the school. He's also paid for some qualified expenses out of pocket. I usually don't fuss with any of that but this year I've asked him to collect records for any of the big expenses (books, primarily) just so we can offset more of the distributions.
