My son's tuition is paid out of his own 529 plan. Incredibly enough, that allows me to take a NYS tuition credit. (thanks Victor!) Does anything like that happen on Federal also? Or is he the only one that can claim the credit/deduction, and only then if I don't claim him as a deduction? Any references to clearly explained information would be appreciated.
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Several issues at work here. You cannot base any tax benefit on expenses paid with tax-free distributions from the 529. If there are qualified expenses above that amount, a credit or the tuition/fees deduction may be available. An education credit can be taken only on the return claiming the student's personal exemption unless no one claims the student's exemption, in which case the credit can be claimed only on the student's return. The tuition deduction can be taken only by the person who paid it and cannot be claimed on a dependent's return. All this is covered in IRS Publication 970.
-- Phil Marti Clarksburg, MD
At the federal level you can't double dip that way. However, there are qualified expenditures from a 529 plan other than tuition. Apply the distributions to books, supplies, room and board, first. Then if there are unused amounts, count them as tuition payments. Any tuition payment not covered by the 529 distribution (as used in the suggested order) remains eligible for the tuition deduction or education credit.
Sucks, but thanks for the information.
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