529 used for room and board only - how will this effect AOTC?

Paying for College
1

<p>I've just been learning about the AOTC. My son has a full tuition scholarship. We will be using $7,000 from his 529 to pay for his room and board. Would we still be able to take the AOT credit on our taxes or does using the 529 account negate that option, even if it's for room and board only? If I understand correctly, room and board is not a qualified expense for the AOTC, so if we use the 529 for room and board, does that mean we can still get the AOTC? Thanks for any insight!</p>

<p>Edited: Never mind, I think I figured it out. We wouldn't be eligible for the AOTC if we are only paying room and board. </p>

2

<p>Your son can report $4,000 of the scholarship on his tax return as taxable, then you may be eligible to take the $2,500 AOTC on your return.</p>

<p>Consult a tax advisor.</p>

<p>See also IRS Publication 970:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

3

<p>You have to have $4000 paid in QEE (tuition, books, fees) to take the AOTC, and those expenses you pay through 529 funds won’t work. IF he is allowed to transfer some of the tuition scholarship to R&B (some scholarships are strictly for tuition, or a computer, or books), and you pay the tuition with non-529 funds, you can claim the AOTC. Your son would then claim the scholarship amount used for R&B as income on his tax return.</p>

<p>If you use all 529 funds to pay for college, that is your tax break. No double dipping. If R&B is $11000, you can pay $7000 with 529 funds, $4000 with ‘scholarship’ funds (that are now taxable to son) and $4000 cash that you pay for tuition and then you can use the $4000 you paid OOP toward the tax credit ($4000=a $2500 credit).</p>