Thanks, Amy! (Love "get to" pay tax...) 😂
Yes, his unrelated unqualified 529 withdrawal has no QHEE to offset it. So he is paying tax (minimal since he has no other income) and the 10% penalty on ALL of that. So I think that is a non-factor.
The 4K tuition used to claim the credit thus does not appear on his return other than for the express purpose to claim the AOTC. It is not an expense used to offset a 529 w/d, and as noted previously his 1098-T is informational only. So the only place the 4K AOTC penalty-exemption is being applied is on MY return, where I am now paying tax on the 4K 529 w/d, but no penalty.
So if I am reading your response correctly, this is accurate handling of it, with no double-dipping.
