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Confused about 529 withdrawal and reporting taxes for AOTC

@jimmieb wrote:

I want to verify what I am doing is correct regarding reporting the tuition payments from 529 plan and the tax credits (most likely the AOTC). I have looked at numerous posts here and other locations trying to figure this out and frankly, it is giving me a headache. I think I understand what to do but I really want to verify that I am doing the right thing. Here are the details:

My daughter (20 yrs old) attended college as a full time student, currently her 2nd year started this spring (she started last year in the spring). She is the beneficiary of the 529 plan (Ohio). She is working part time (had about $9,000 income with taxes withheld) and lives at home. She received both the 1098-T and 1099-Q in her name (and SSN). My wife and if file jointly and we are under the $160,000 limit to receive the AOC. I was planning on claiming her as a dependent on my taxes. I paid the full amount of her tuition (for the 1st 3 semesters because she started in the spring) with her 529 plan, I did not make any other withdrawals besides the tuition which was sent directly to the college. She had no scholarships or grants.

Here are some numbers from the 2 forms:

1098-T:
Box 1: $16,541
Box 5: empty
Box 7: checked
Box 8: checked

1099-Q:
Box 1: $16, 571 (yes it was $30 more than the tuition amounts, not quite sure why)
Box 2: $6,469
Box 3: $10,102
Box 5: State is checked

I am trying to figure out how to get the AOTC and report everything properly without my daughter having to pay taxes on the amount of earnings that is left after subtracting the $4,000 for the AOTC credit. I understand that the 529 plan can be used for other expenses (room and board and books) but I don't have any amounts to know what to use (besides guessing or working with my daughter to try to find them from the past year, yikes). Also, since the 529 withdrawals were only made for tuition and directly to the school, I am not quite sure how this can count for things like books/room/board. I did the calculation from the IRS pub 970 and the amount I came up was like $1,500 (note this is based of the actual numbers not the approximate numbers above). Is this amount reported on her tax return and is this subject to the 10% penalty? The question I am presented with (H&R Block Tax app) has an option that says "You included the distribution in income so you could claim an education credit". If I say yes to that, then it doesn't charge the 10% penalty but I wasn't sure if that was the case since the education credit is on my return. At this point I am totally confused on how to proceed and don't want to screw it up and have it come back to haunt me. I am hoping someone can provide a sanity check and help me figure out how to go about reporting this properly.

Thanks in advance

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