If your student is half time or more, room & board (R&B) are qualified expenses for a 529 distribution (but not the tuition credit or tax free scholarship). So, forget the 1099-Q. The 1099-Q is only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you can.
"I seemed to have missed this credit in 2023 when I paid tuition out of pocket and didn't use any 529 funds at all, but I am not going to amend that years return regardless."
The credit is worth $2500 to most people. A minimum of $1955 based on your 2024 numbers. You should probably amend.
There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the conditions of the grant are that it be used to pay for qualified expenses.
Using your numbers: Student has $3475 in box 5 of the 1098-T and $5238 in box 1. At first glance he has only $1763 for the American opportunity credit. But if he reports $2237 (4000 -1763) as income on his return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $200 in expenses for those course materials, paid out of pocket. He would only need to report $2037 of taxable scholarship income, instead of $2237.
The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.
If that is his only income, he will pay no tax. Technically, he doesn't even need to file.
