Can I claim an education credit the same year I take a distribution from a qualified tuition program (QTP)?

You can claim an education credit the same year you take a tax-free distribution from a QTP as long as the same expenses aren't used for both benefits. Some qualified expenses for a QTP distribution, such as college room and board, don't count as qualified expenses for the education credits.

Our software will automatically calculate the taxable portion of your distribution after you report the tuition expenses, education credits, and QTP distribution.

Example: You take a $5,000 distribution from your QTP ($500 in earnings, $4,500 in basis) to pay for a total of $5,000 of qualified education expenses in 2025. You also claim the full amount of the American Opportunity Credit (AOC) on your 2025 return, which uses a maximum of $4,000 in qualified education expenses to calculate the credit.

To calculate the taxable amount of your distribution, you must first calculate your Adjusted Qualified Education Expenses (AQEE) by subtracting the amount used for the AOC from your total expenses, or $5,000 - $4,000, for a total of $1,000. You then perform the following calculation:

1. $500 (earnings) x $1,000 (AQEE)
                               $5,000 (distribution)
   
   = $100 (tax free earnings)


2. $500 (earnings) - $100 (tax-free earnings)
   
   = $400 (taxable earnings)

$400 of your distribution would be considered taxable income. Our software will calculate this and place the correct numbers in the right place on your tax forms.

See Publication 970  for more details.