You can receive both tax benefits.....but you can't count the same expense twice. A QTP is a 529 Plan.
If all the college expenses were paid with withdrawals from a 529 Plan, it would be most advantageous to claim the AOTC using the first $4000 in expenses. This may leave you with up to $4000 of 529 withdrawals as potentially taxable.
From IRS Pub 970, Chapter8:
Coordination With American Opportunity and Lifetime Learning Credits
An American opportunity or lifetime learning credit (education credit) can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses aren't used for both benefits. This means that after the beneficiary reduces qualified education expenses by tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit.
Example 2.
Assume the same facts as in Example 1 , except that Sara's parents claimed an American opportunity credit of $2,500 (based on $4,000 expenses).
Total qualified education expenses$8,300 Minus: Tax-free educational assistance?3,100 Minus: Expenses taken into account
in figuring American opportunity credit?4,000 Equals: Adjusted qualified
education expenses (AQEE)$1,200
The taxable part of the distribution is figured as follows.
1.$950 (earnings)×$1,200 AQEE
$5,300 distribution = $215 (tax-free earnings)
2.$950 (earnings)?$215 (tax-free earnings) = $735 (taxable earnings)
Sara must include $735 in income (Form 1040, line 21). This represents distributed earnings not used for adjusted qualified education expenses.
Coordination With Coverdell ESA Distributions
If a designated beneficiary receives distributions from both a QTP and a Coverdell ESA in the same year, and the total of these distributions is more than the beneficiary's adjusted qualified higher education expenses, the expenses must be allocated between the distributions. For purposes of this allocation, disregard any qualified elementary and secondary education expenses.
Example 3.
Assume the same facts as in Example 2 , except that instead of receiving a $5,300 distribution from her QTP, Sara received $4,600 from that account and $700 from her Coverdell ESA. In this case, Sara must allocate her $1,200 of adjusted qualified higher education expenses (AQHEE) between the two distributions.
$1,200 AQHEE×$700 ESA distribution
$5,300 total distribution=$158
AQHEE (ESA)
$1,200 AQHEE×$4,600 QTP distribution
$5,300 total distribution=$1,042
AQHEE (QTP)
Sara then figures the taxable portion of her Coverdell ESA distribution based on qualified higher education expenses of $158, and the taxable portion of her QTP distribution based on the other $1,042.
Coordination With Tuition and Fees Deduction
A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a QTP, as long as the same expenses aren't used for both benefits.
