Lifetime Learning Credit

[cch0525]

My wife and I are MFJ. My wife is in grad school full time and therefore has education expenses via 1098-T in her name. Her parents have a 529 plan in their name, which they use to pay all of the education expenses for my wife (they receive a 1099-Q in their name). Are we able to claim the Lifetime Learning Credit for my wifes expenses if they are paid for by her parents' 529 plan? I would think they'd get that 1099-Q distribution tax free since it goes toward qualified education expenses. Does that preclude my wife from the LLC? I can provide specific details from the 1098-T and 1099-Q if it is helpful. Thanks in advance. 

[DavidD66]

No, you cannot claim the Lifetime Learning Credit (or American Opportunity Credit) if the education expenses were paid from a 529 Plan distribution, unless the 529 Plan distribution is treated as a non-qualified distribution and tax and penalties are paid.