Phil's qualified education expenses for the year are $34,000. He claims a $2,500 American Opportunity Credit (based on $4,000 of his expenses). If Phil receives a $40,000 ESA distribution that includes $4,000 in earnings, how much of the entire ESA distribution will he receive tax-free?

a. $39,000

b. $0

c. $34,000

d. $3,000

 

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