1098-T / AOC Tax Credit Questions

Paying for College
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<p>^^we also pay our Ds taxes…feel like she earned it by getting scholarships. Reading the publication, I think I see what you and annoyingdad are saying if scholarship $ is less than total cost, but it must mean parents have paid money toward something in order to shift the allocation right? Would you be able to take a credit if you never wrote a check? M D has full COA scholarship so we pay nothing, so nothing to shift (a good thing and obviously don’t need credit if no expense). Other D’s is specifically tuition scholarship. So our only qualifying expenses for her are books. (just curiousity since can’t complain about not getting credit :))</p>

<p>Our biggest confusion this year was about the fact 1098 list academic year scholarship, but didn’t pay for spring term in 2012…makes my head hurt but figured it out.</p>

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<p>Correct that you cannot take the credit if you pay nothing out of pocket. The shifting is just so you can say “this money that I paid out of pocket went toward tuition” and then apply the scholarship to R&B, if you are paying some of the total out of pocket.</p>

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<p>If a student has scholarships that cover everything (including books etc), then there is no shifting to be done. If a dependent student pays anything out of pocket, including with loans, then those are treated as if the parents paid it.</p>

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<p>@mathmomvt
Are you saying I should take the full credit or just the amount we paid for the summer class?
No my D didn’t buy any books. She had something called a SOG award which is a voucher for books. </p>

<p>@momcat2
Cost of Attendance $18336
Scholarships $14603 ($3570 is earmarked for tuition - we can use the other scholarships for any type of expense)
Tuition/Fees $8151
Our Out-of-pocket $3733 + $890 for summer tuition (we did not take out any loans - my mother, myself & my daughter all contributed to the expenses)</p>

<p>*Just curious, why would it matter if we paid expenses from money we received from a loan or if we paid expenses out-of-pocket (checking account, savings, cash, etc)?
The only cost that was paid directly to the college from us, was an electronic bank payment for the summer tuition. Again, we did not take out any loans.</p>

<p>@annoyingdad
You explained that very well! That’s exactly what I am trying to do. And holy cow, I was going by the 2011 Publication 970 - I couldn’t find the 2012 version when I printed it out a few months ago. </p>

<p>So by using my numbers above: Out of $14603 scholarships, I would allocate $5041.00 of it toward tuition and claim $3110 of out-of-pocket expenses toward tuition (=$8151)
Plus we paid $890 for summer tuition so that brings me to $4000 for the AOC. So my D pays taxes on $9562, correct? </p>

<p>Thanks to everyone for your feedback!</p>

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<p>Since you paid more than 4K out of pocket, you can take the full credit, and just as you say, your D would have to pay tax on D pays taxes on $9562 of scholarships that didn’t go toward tuition.</p>

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<p>Wait, if you only paid the summer tuition directly to the college, then you can probably only take the credit on that amount.</p>

<p>How was the other $3733 paid? If you’re just subtracting scholarships from the theoretical COA to get that number, I don’t think you can take the credit on that. It has to be money you actually paid. You need to be careful that you are “allocating” the scholarships to things that the scholarship is actually allowed to cover. If the scholarship came directly from the school, it can probably only be used for direct expenses billed by the school. If it’s an outside scholarship it <em>may</em> be possible to use it for indirect expenses like travel and even “pocket money” for your D but you’d need to check the wording of the award(s).</p>

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<p>OP - NO. You still have some mistaken ideas here. </p>

<p>“Cost of attendance” often includes things like personal expenses and travel. The only Qualified Educational Expenses for purposes of the AOC are tuition and fees (only fees that are required for attendance at the school, BUT a student health services fee is NOT a QEE) and required books/materials/supplies.</p>

<p>If a loan taken out by you, or by your daughter (including one as part of her FA package), was used to pay for QEE (again, miscellaneous personal expenses don’t count), then that amount can be used for the AOC. Read Pub. 970 - it clearly states that expenses paid (by cash or loan) by your DEPENDENT child count as being paid by the parent for purposes of the AOC.</p>

<p>Shifting around of scholarship money to count as taxable scholarship so parents can claim the AOC can only be done if the parents or student paid <em>something</em> out-of-pocket (and only to the extent of that amount). If tuition, room and board were all covered by scholarships/grants (and it sounds like that was the case here), then the only expense that can be claimed for the AOC is required books. If books were also covered by scholarships or a voucher, then nothing can be claimed for the AOC.</p>

<p>In your case, since $890 of summer tuition was paid out of your pocket (i.e, not covered by scholarships/grants), that amount can be claimed for the AOC. And in your case, that is the ONLY amount that can be claimed.</p>

<p>FYI, there were no meaningful changes (if any) between the 2011 and 2012 versions of Pub. 970.</p>

<p>Think about it - why would someone be given a tax credit for expenses that THEY didn’t pay, but were paid for by someone/something else - i.e. scholarships?</p>

<p>on edit - crossposted w/ mathmomvt. Edited for typos, clarification.</p>

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<p>“Cost of attendance” often includes things like personal expenses and travel. The only Qualified Educational Expenses for purposes of the AOC are tuition and fees (only fees that are required for attendance at the school, BUT a student health services fee is NOT a QEE) and required books/materials/supplies."</p>

<p>Yes, I understand Cost of Attendance and Qualified Educational Expenses.
I used these numbers because this is how other people are figuring their out-of-pocket expenses. Maybe that’s the wrong way of going about it but from doing a search on this forum, that’s what I came up with. COA minus scholarships = amount out of our pocket. And I’m not talking about out-of-pocket for QEE, just out-of-pocket for any expense listed in the COA.</p>

<p>“If a loan taken out by you, or by your daughter (including one as part of her FA package), was used to pay for QEE (again, miscellaneous personal expenses don’t count), then that amount can be used for the AOC. Read Pub. 970 - it clearly states that expenses paid (by cash or loan) by your DEPENDENT child count as being paid by the parent for purposes of the AOC.”</p>

<p>Yes I understand this part too and I did read Pub 970. But again, I keep seeing examples about people claiming their loan paid for tuition so that was throwing me off about whether or not just paying out of our bank account would matter or not.</p>

<p>“Shifting around of scholarship money to count as taxable scholarship so parents can claim the AOC can only be done if the parents or student paid <em>something</em> out-of-pocket (and only to the extent of that amount). If tuition, room and board were all covered by scholarships/grants (and it sounds like that was the case here), then the only expense that can be claimed for the AOC is required books. If books were also covered by scholarships or a voucher, then nothing can be claimed for the AOC.
In your case, since $890 of summer tuition was paid out of your pocket (i.e, not covered by scholarships/grants), that amount can be claimed for the AOC. And in your case, that is the ONLY amount that can be claimed.”</p>

<p>You are the first person I have seen spell it out so clearly. Thank you! </p>

<p>“FYI, there were no meaningful changes (if any) between the 2011 and 2012 versions of Pub. 970.”</p>

<p>The two versions I have in front of me (2011 & 2012) are different. Maybe in the end, they mean the same thing. But the 2012 includes examples on pg.13 that the 2011 version does not have(listed under "Coordination w/pell grants & other scholarships) The examples given this year are much easier to understand, IMO.</p>

<p>“Think about it - why would someone be given a tax credit for expenses that THEY didn’t pay, but were paid for by someone/something else - i.e. scholarships?”</p>

<p>Yes, that absolutely makes sense. I think you have misunderstood most of my post.
I thought that because we paid plenty of money out-of-pocket for expenses included in the COA, that we could move things around (allocate) some of the scholarships to expenses other than tuition, and allocate some of our money that we spent, to the tuition (QEE).
I guess I am wrong! LOL
Thanks your help :)</p>

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<p>dmh, what did you spend money on out of pocket? You need to use real numbers, not the COA estimate that you “might” spend $X on travel or $Y on personal expenses. </p>

<p>You can’t figure COA - scholarships = out of pocket, because you might have spent more or less than the projected amount.</p>

<p>If you DID spend money on something like travel, then you <em>might</em> be able to apply part of your D’s scholarship toward that IF THE SCHOLARSHIP ALLOWS IT. This is probably only true if the scholarship was paid directly to you, and you sent (some or all of) the money to the school. If the scholarship was school-based, or from an outside organization but sent directly to school, it is probably only intended to be used toward direct-billed expenses. If the scholarship is intended to be used toward direct-billed expenses, you can’t allocate it toward things like travel and personal expenses to get the tax credit.</p>

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<p>@mathmomvt… we actually paid $1079.40 to the school. It was for a required summer class which was $890 and the remainder was for miscellaneous fees that my D owed (fees that are not considered QEE)
Out of $14603 of scholarship, only $3570 of that was a scholarship from the school, which had to be used on tuition only. The other scholarships can be used on any other expenses listed in the COA.
NONE of the scholarships were paid directly to us - they all went through the school.
We spent a lot on travel because my daughter has clinicals and has to drive pretty far to get there & back. But I didn’t think that was considered a QEE.</p>

<p>I hate to ask another dumb question but my head is spinning at this point.
On my D return, I have to pay the difference between the scholarship and tuition, right?
$14603 - $8151 = $6452.
I am taking the AOC for the $890 we spent on summer tuition. My D has to pay taxes on the $890 too, correct?</p>

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<p>

Why would your daughter have to pay taxes on money you spent for her tuition? In your calculations you need to add the $890 to the original tuition figure so when you subtract it doesn’t change the net amount.</p>

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<p>The reason we would pay tax on the $890…</p>

<p>Out of $14603 scholarship, $7261 was spent on tuition and and $7342 on R&B.
So D will pay tax on the $7342
Which is scholarship (14603) minus total tuition cost (8151) = $6452 + 890 out of pocket = $7342.00 - Same difference, isn’t it? I saw other people doing it this way so that’s why I thought I had to add the $890.</p>

<p>I’m not sure what you are saying: add the $890 to the original tuition figure so when you subtract it doesn’t change the net amount.</p>

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<p>I assumed the $8151 you mentioned for tuition was for the normal school year and did not include the $890 for summer tuition based on how you worded your original quote. ;)</p>

<p>I hate to ask another dumb question but my head is spinning at this point.
On my D return, I have to pay the difference between the scholarship and tuition, right?
$14603 - $8151 = $6452.
I am taking the AOC for the $890 we spent on summer tuition. My D has to pay taxes on the $890 too, correct? </p>

<p>If you included the $890 in the original $8151 amount than the $6452 figure is what your student pays taxes as income not $6452 + $890.</p>

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<p>@KDog044
I am looking at it like this:</p>

<p>The amount of the scholarships that was spent on tuition/fees, is NOT taxable: $7261
The amount of the scholarships spent on R&B IS taxable: $7342</p>

<p>I cannot claim that the $890 was paid for with the scholarship money because then I wouldn’t be able to to take the AOC. </p>

<p>Does this make sense?</p>

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<p>Another question:
My mother is butting in on our taxes at the last minute.
She asked her friend who does her taxes every year what he thought about my D having to pay taxes on her scholarships.
He said he wants to see our taxes AND that my daughter doesn’t have to pay ANYTHING because she is still in school.
Anybody know what the heck he is talking about???
I haven’t heard anybody else mention this. Nor have I read about that anywhere in the IRS publications.</p>

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<p>If that’s the advice your mother is getting from the person who does her taxes, she needs to find someone else.</p>

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<p>@3bm103
LOL I said the same thing to my daughter! but thought I should make sure. thanks!</p>

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<p>Does taking the American Opportunity Credit raise or lower the EFC for the FAFSA calculation? The college made a correction on my FAFSA and lowered the AOC credit which raised my EFC.</p>

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<p>The AOC should not affect the EFC at all. The credit reduces taxes, which would make more money available to the EFC formula (taxes are an allowance against income in the formula so lower taxes = higher income). So FAFSA asks how much the AOC credit was. The FAFSA question is used to wipe out any effect the AOC would otherwise have on the EFC (as the intention of getting the credit is not to increase your EFC). </p>

<p>So changing the AOC amount on the FAFSA question would increase the EFC. The question is, was the correction correct?</p>