<p>Can I claim some of my scholarships as taxable income to increase the size of my parents' American Opportunity Credit? (Recall what you can claim for the credit is tuition billed minus any scholarships/grants received.)</p>
<p>Ex. I have $20,000 in qualified tuition expenses. My scholarships amount to $19,000.</p>
<p>Can I only claim a credit up to $1,000 OR, if $1,000 of my scholarships as taxable income, (if I used those funds to pay for room and board), can my parent able claim a credit on $2,000? ($20000 - ($19000 - $1000) = $2000)</p>
<p>The reason that I ask this is because my standard deduction is $5,700 (using a 1040EZ). Ex. I made $2,000 working in 2010. I can count up to $3,700 in scholarships as taxable. Total, the amount of income on Line 1 on my 1040EZ is $5,700 (which it is considered a part of my deduction) so I pay no tax on it. When counting $3,700 in scholarships taxable, I have $15,300 in tax-free scholarships. Subtracting that number from $20,000 I get $4,700 that I could claim as a credit (but the max you can claim is $4000).</p>
<p>Sorry if my wording was confusing. Any help here is much appreciated!</p>
<p>You cannot claim the credit if you are a dependent on your parents’ tax return; only they can claim the credit if you are their dependent. Also, don’t forget the books are qualified expenses for the American Opportunity Credit that the parents can claim. It often is better for the student to pay a little state tax and even federal tax, if needed, for the parent to get a credit on their return, so I think you are on the right track. You can pay room and board with some of the scholarship, so long as the scholarship is not a tuition-only scholarship. Work the numbers to maximize the “family return”, taking into consideration what you pay in state/fed taxes with what your parents can get from the tax credit.</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>Thanks. It’s good to hear I’m not the right track. I understand that I cannot take the credit (since I am a dependent)-- only my parents can. I plan on the possibility of having to pay <em>some</em> taxes in order to maximize this benefit. My scholarships and grants can be used for either tuition or room/board, so I’m in the clear there.</p>
<p>My main point of concern was whether or not I could claim some of my scholarships/grants as ‘taxable’. I wasn’t sure if I could. Since I checked, and I can, it looks like my parents’ return will be maximized.</p>
<p>Thanks for your help!</p>
<p>Do remember, as bthomp mentioned, that required books, supplies and equipment count as “eligible educational expenses” for the AOC, as do required fees that are required for attendance at the institution. IRS Pub 970 has the details if you need them.</p>
<p>You’re definitely on the right track. It totally makes sense to do this in order to minimize the total family tax bill (state and fed).</p>
<p>Ex. I have $20,000 in qualified tuition expenses. My scholarships amount to $19,000.</p>
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<p>Do you have any room & board charges that you could have used the scholarships to pay? If any of the scholarships are tied to tuition only, you have to count them toward tuition. But if you have room & board charges, and the scholarships are not tied to tuition, you can count the scholarships/grants toward the room & board. Then you can look at money your parents paid as counting toward tuition & fees. There are examples like this on the IRS website.</p>
<p>You only need $4000 in payments toward tuition to take the full AOC, correct?</p>