You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items.

• Employer-provided educational assistance
• Tax-free distribution of earnings from a Coverdell education savings account (ESA)
• Tax-free distribution of earnings from a qualified tuition program (QTP)
• U.S. savings bond interest that you exclude from income because it is used to pay qualified education expenses
• The tax-free part of scholarships and fellowships
• Veterans' educational assistance
• Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance

This information is found in Publication 970, Tax Benefits for Education.