Yes, double dipping is not allowed. But you are allowed to split up the expenses in claiming the available tax benefits. Since the AOTC is the most generous benefit, he should claim that even if some of the 529 distribution earnings is taxable on your return.
It takes $4000 of tuition to get the maximum AOTC. But, if he's only getting $1000 AOTC, it usually means he has no tax liability ($1000 is the refundable portion of the $2500 [maximum] AOTC). If he only uses $2000 of tuition, his refundable AOTC will be $800.
You need to do the math to decide how to split up the benefits. Roughly it's sounds like you can do both. He uses $4K of tuition, leaving $10K for your 529 distribution. That plus what you paid for room and board should get you to the $16K distribution.
Provide the following info for more specific help:
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Any other scholarships not shown in box 5
- Does box 5 include any of the 529/ESA plan payments (it should not)
- Is any of the Scholarship restricted; i.e. it must be used for tuition
- Box 1 of the 1099-Q
- Box 2 of the 1099-Q
- Room & board paid. If student lives off campus, what is school's R&B on campus charge. If he lives at home, the school’s R&B “allowance for cost of attendance” for student living with parents.
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
- How much taxable income does the student have, from what sources
- When he went to school before, how many times did you claim the AOTC or Hope credit?
- Is the student an undergrad or grad student?
- Is the student a degree candidate attending school half time or more?
