<p>I hope someone here might be able to answer some questions I have. My daughter is a freshman beginning the fall semester of 2011. Her 1098-T from the university only includes the fall semester (instead of fall/spring 2011-12 school year). On the form, box 2 (amounts billed for qualified tuition and related expenses) shows as 8300. Box 5 (scholarships and grants) is 8800. She also received 1700 in loans (3400 total in loans but split in half for fall and spring semesters). </p>
<p>So the first question is, since the 1098-T only includes the amounts for a calendar year instead of the 2011/12 school year, is that how I would report it for tax purposes? Or would I estimate what the amount for the school year would be and report that even though it would not match the 1098-T?</p>
<p>The second question is about the American Opportunity Tax Credit. Assuming I am using the numbers on the 1098-T, can I claim the 1700 loan as qualified expenses for the tax credit? And if that is allowed, would my daughter be responsible to pay taxes on 1700 of grants and
scholarships as well as 500 she received as a grant/scholarship refund?</p>
<p>Thank you in advance to anyone responding to my post! I am having a hard time wrapping my head around how this works for some reason.</p>
<p>The IRS uses the calendar year and so do you for your personal income taxes, so the school has actually done it correctly. If you had more expenses than were covered by the reported aid, you can choose to treat part of her scholarship/grants as having paid tuition and qualified expenses as long as they were not awarded specifically for tuition (ie. not a full/partial tuition scholarship). In that case, your daughter would not be able to use those expenses to offset the grants. Whether she would have any tax liability likely depends on her other income as she does have a $5800 standard deduction.</p>
<p>I’m a freshman mom here, so hopefully someone will correct me if I’m wrong, but this is my current understanding:</p>
<p>1) the loan doesn’t come into play as far as I can tell</p>
<p>2) If the scholarships and grants are allowed to be used for room and board and other non-qualified expenses, your daughter can elect to declare part of the scholarship/grant income as taxable income to leave qualified expenses un-covered so that you can take the AOC.</p>
<p>3) If you kept records, amounts spent on required textbooks and other <em>required</em> materials, can be added to the $8300 of qualified expenses.</p>
<p>So I think if your D spent, say, $400 on textbooks, she’d have $8700 of qualified expenses. If she applies $4100 of her scholarship funds toward room and board, she declares that as taxable income and pay taxes on it (at her tax rate). You would then have $8700 in qualified expenses and only $4700 in scholarship funds that were applied toward them, leaving you $4000 of uncovered qualified expenses that you can use to qualify for AOC.</p>
<p>I haven’t started filling out forms yet, so I don’t know where any of this goes, but I am almost certain that you can split the scholarship income up like that. You’ll have to keep good records documenting how the numbers on the 1098-T and textbook receipts line up to the numbers you put on her and your own tax forms.</p>
<p>$8800 qualified expenses (8300 + 500 in tuition, fees, books)
$8800 scholarships and grants (subtract from eligible expenses)</p>
<p>So, you had $8800 in expenses covered by $8800 in scholarships/grants, leaving zero dollars left to use for the American opportunity credit. So, I don’t think you can’t take the credit. But the good news is, there’s no excess of scholarship, so there’s no taxable scholarship income either.</p>
<p>You can try a tax preparation website, it leads you through all the calculations pretty well.</p>
<p>If your qualified expenses are met with scholarships or other tax-advantaged funds (like 529 withdrawals), you do not get the AOC. Looks like all your qualified expenses were met with scholarships. </p>
<p>I don’t get it 2011 because I used 529 money to cover everything I owed. This year, 2012, I’ll be making sure the scholarships cover tuition, the tax advantaged money pays room and board, and I pay fees out of current income. I won’t get the full $4000, but I may get a little.</p>
<p>“does it matter when it was actually paid?”</p>
<p>Yes…as has been noted many times previously, 1098-T forms are notorious for having numerous errors. Make sure you have detailed records and can back up your figures. If you paid tuition/fees in 2011, by all means use those expenses for the Opp Credit on your 2011 tax return…no matter what the 1098-T shows.</p>
<p>ordinarylives and carebear, I think the OP can choose to have some of the scholarship income go toward room and board (a non-qualified expense). That becomes taxable income, but it’s taxable to the student, who is probably in a low tax bracket and depending on other income may owe no tax at all after the standard deduction. This assumes that the expenses OP paid for were not paid out of 529 funds.</p>
<p>I’ve now read about this on the IRS website several times, after doing it incorrectly and in a way disadvantageous last year. Both my accountant and I are pretty convinced that unless the scholarships (merit, in this case) were tuition-specified, we can demonstrate a sufficient amount of same was spent on non-qualified educational expenses (residence) and our out-of-pocket and loan dollars were spent on qualified expenses (tuition, some fees, books and materials required for courses.)</p>
<p>That does mean that your d will pay tax on the $4,000 worth of scholarship applied to residence, for example - but with no other earnings and a standard deduction of $5700 there should be no tax.
As I have learned (belatedly) - the AO is of most benefit to parents 9 times out of 10, so be sure to be the one taking it (eg. your d is your dependent.)</p>
<p>“I don’t get it 2011 because I used 529 money to cover everything I owed. This year, 2012, I’ll be making sure the scholarships cover tuition, the tax advantaged money pays room and board, and I pay fees out of current income. I won’t get the full $4000, but I may get a little.”</p>
<p>Do you have the option to have the scholarships go to pay room & board? If so, I’d consider doing that. They become taxable to the student, but as mentioned this tax impact could be/should be minimal. This would allow you to pay for tuition/fees/books with the 529 funds…except that you would want to pay for $4000 out of pocket (if possible). This would allow you to take full advantage of the AOC ($2500 in your pocket), and save some of those 529 funds for later years.</p>
<p>Thanks for the suggestion, but I don’t think I can make that work. My d’s scholarship is a tuition remission scholarship (she attends school where I work), so it is definitely applied to tutition. In fact, my bills says “tuition remission” right on it. This year, I just paid my balance due for fees, room, and board with 529 money. </p>
<p>I probably won’t ever get to $4000 a year in out-of-pocket qualified expenses with this kid, but next year I’ll make sure I pay fees, books, and summer school tution oop so I can get something.</p>
<p>I am having a hard time understanding all of this. Please tell me if I have this right.
Qualified expenses-2500. Tuition, fees, books-fall only.
Scholarships-3720- fall only
Room, food, ect, paid for with balance of above scholarship, stafford loan, and parents.
I do not believe the scholarship money is from “tuition only” type scholarships.
Do I HAVE to use the way the school account says they dispersed the money?
Or can I say scholarship money used for room, food, ect. and then say loan money went to tuition?
I think I can say the loan money went to tuition and then claim the AOC tax credit. Is this correct?</p>
<p>OL, you are right – since the scholarship is for tuition only you can only get AOC for the fees, books, summer school, etc. Better than nothing though :)</p>
<p>2collegekids, I think you can allocate the funds in the way you suggest, as long as the room and board amounts are enough to use up the entire scholarship. With only 2500 in qualified expenses, you won’t get the full AOC but you will get most of it.</p>
<p>Wow, confusing to say the least. Especially with each student having so many individual variables. Sounds extremely complicated to determine where to allocate scholarship/grant money.</p>
<p>I can mostly understand obvious things like on-campus room and board. But what if there’s a scholarship for added transportation expenses and child care. Or personal expenses, or off-campus room and board?</p>
<p>In my opinion, it’s getting very gray to take the credit when honestly, your scholarship money covered all or part of your qualified expenses. If someone was allowed to count scholarship funds towards on-campus room and board, why wouldn’t another student be allowed to use it towards transportation, child care, personal expenses, or off-campus room and board? I guess I’m wondering where the black and white line is, or what it takes to successfully defend the gray section. I guarantee the IRS is not going to like it if you get audited, and received an AOC deduction or refund (free money) on scholarship money (free money).</p>
<p>What about the Pell and SEOG? Are they considered tuition specific?</p>
<p>And publication 970 is not clear for many types of situations!</p>
<p>You’re not double-dipping if the student declares the scholarship as taxable income and then you pay out of pocket for qualified expenses and take a tax credit for that. You’re potentially paying extra tax on one pile of money, and getting a deduction on another. The main reason that it ends up being tax advantaged to do so is that the income is (must be) counted as income to the student, who is in a lower tax bracket, whereas for dependent students the parent gets the tax credit. </p>
<p>I think that most need-based grants in a financial aid package can be used toward anything that is in your Cost of Attendance, which could include off-campus housing and possibly transportation. </p>
<p>Publication 970 says of Pell grants:</p>
<p>
</p>
<p>That explicitly admits the possibility that part or all of it will be used for non-qualified expenses, in which case it is considered taxable income. </p>
<p>There is also an example in Publication 970 (search for “Joan”) where two scenarios are given – where Joan chooses to apply her scholarship to tuition or to room and board. It’s pretty clear, then, that the IRS allows that choice and it is not in any way ethically gray or an audit problem.</p>