The Laffell’s oldest son, Chase, started college as an incoming freshman in August of 2019. Mr. and Mrs. Lafell started a 529 plan for Chase when he was very young. When Chase started college, his parents pulled $9,200 out of his 529 plan. $6,000 was paid to the college for tuition, fees, and books. $1,200 was used to purchase Chase a new laptop, and $2,000 went towards Chase’s rent at his off-campus apartment. The Lafell’s will claim Chase as a dependent on their 2019 return. They were told that Chase’s tuition may be eligible for the American Opportunity Credit.

Write a memo to the files explaining the proper tax treatment of the distribution from the 529 plan, what expenses (if any) are eligible for education tax credit, and the relationship between the qualified education expenses allowed under each.