<p>Hello,</p>
<p>My total cost of college attendance for this fall is around $1,500. I understand this amount could be eligible for the American Opportunity Tax Credit.</p>
<p>Do I need to pay the cost out-of-pocket in order to be eligible for this tax credit, or can I take out a federal student loan on the $1,500 and still claim the tax credit?</p>
<p>Thank you very much</p>
<p>Is that $1500 all for tuition, mandatory fees and required books and supplies(QEE)? Those are the only things eligible for the AOC, room and board and other COA items are not. Yes, loans are not free money, you have to pay them back so QEE paid from loan funds are eligible for the AOC.</p>
<p>Pub 970 has all the info:</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>Thank you for your response. I have received scholarship from the school and grants from the federal government, but those are not specific as to what they cover. How should I go about in determining whether my $1500 is for tuition/books/etc, or not?</p>
<p>Here are the hypothetical numbers that resemble my case.</p>
<p>Undergraduate tuition $20,000
Total fees $250
Room & Board $6,000</p>
<p>===
School’s Scholarship 1 ($3500)
School’s Scholarship 2 ($20,000)
Private Scholarship ($300)</p>
<p>Federal Pell Grant ($950)</p>
<p>Balance: ~$1500 (I plan to cover with a student loan)</p>
<p>Thank you</p>
<p>^Your scholarships are $24,750
Your tuition & fees are $20,250</p>
<p>So your tax-free scholarships are $20,250, taxable scholarships are $4,500, and qualified expenses for tax credits are $0</p>
<p>Or your tax-free scholarships are $16,250, taxable scholarships are $8,500, and qualified expenses for tax credits are $4,000</p>
<p>The college will send you a 1098T after 1/1, if you qualify for the AOC. If your scholarships exceed the cost of tuition and fees (and some legit misc expenses,) you do not qualify. In your example, school scholarships alone exceed allowable costs. You can have the college explain it.</p>
<p>Adding to initial confusion, some schools will include 2013 only on the 1098T, some will go by academic year. The IRS allows that choice.</p>
<p>Scholarships = tax-free scholarships + taxable scholarships.</p>
<p>Usually, you can decide how much are tax-free and taxable scholarships.</p>
<p>Qualified expenses for tax credit = tuition & fees and books expenses - tax-free scholarships.</p>
<p>You’re allow to move the numbers around (see my last post), but they have to satisfied these two equations.</p>
<p>OK, first thing is, from the numbers you gave, it appears you have taxable scholarships/grants. See chapter 1 of Pub 970.</p>
<p>The amount of scholarships/grants that exceeds QEE is taxable to the student. Given your numbers the taxable amount would be $24,750 - $20,250 - cost of required books and supplies. </p>
<p>Can your parents claim you as a dependent on their taxes? If so, they would claim the AOC, not the student. But in order for them to claim it, you would have to say an extra $1500 went toward room and board and add that $1500 to the taxable scholarship amount from the previous paragraph. Then your parents could say the $1500 from the loan went toward QEE for the AOC.</p>
<p>If you are a 1st time freshman this fall, those numbers for tax year 2013 would be cut in half. You will have to file a 2013 tax return if the taxable amount of scholarships/grants plus any income you have from work + interest/dividends etc. is greater than $6100.</p>
<p>Are you dads accounting for the 1098T? It will tell you the amount of costs (tuition and fees) over the scholarship amount. This is AOC, separate from taxable scholarship excess.</p>
<p>At a minimum, the example’s $23,500 exceeds tuition and fees. I got caught with this one year, based on a unique accounting situation from the college.</p>
<p>
room & board are not qualified expenses for AOTC</p>
<p>Correct, so the student would apply $1500 of scholarships/grants to R&B and report it as additional income so the parents can say the $1500 went to QEE.</p>
<p>The form is 8836. In discussing who qualifies, this does not: “Students whose tuition and related expenses are waived entirely or paid entirely with scholarships or grants.”</p>
<p>In the example, school aid 3500 + 20000 exceeds.</p>
<p>Form 8836?? Title of Form 8836 is “Qualifying Children Residency Statement (for the earned income credit)”</p>
<ol>
<li>oops.</li>
</ol>
<p>AOC: Were the expenses paid entirely with tax-free educational assistance, such as a scholarship, grant, GI Bill, or assistance provided by an employer?</p>
<p>If Yes, cannot claim.</p>
<p>Then,
A scholarship or fellowship is tax free only to the extent:
It does not exceed your expenses;
It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and
It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship.</p>
<p>Chapter 2 of Pub 970 has examples showing that if the terms of the scholarships/grants permit, part of them can be shifted to paying for non-QEE, so that out of pocket payments can be applied to QEE and the AOC claimed. The student then has to report that shifted amount as additional income.</p>
<p>
</p>
<p>^See [Publication</a> 970 (2012), Tax Benefits for Education](<a href=“http://www.irs.gov/publications/p970/ch02.html#en_US_2012_publink1000204348]Publication”>http://www.irs.gov/publications/p970/ch02.html#en_US_2012_publink1000204348)
</p>
<p>^^^We did exactly this when my daughter was in school. She had some scholarships that were tuition waivers, so those were not taxable. Another had no restrictions so we used that for room and board (making it taxable) and used her mandatory fees and books to claim the AOC.</p>
<p>Joan’s total scholarship was less than tuition. And she didn’t paper-move a part of it to RB to come in under alllowable. We don’t know how OP’s funds are designated. I don’t think he’ll declare 24k to get the AOC. I don’t think he can assume he’s allowed to just call 6k RB, leaving him with scholarships under the cost of tuition and fees. ?</p>
<p>But, I’m not going to press. We’re looking at the same sources.</p>
<p>I see now that Bill split his 5600k scholarship, 4400 to RB, leaving 1600. I’ll need to look further, see what the tax implications would be, for the case where D1 exceeded allowable. (Funky situation, rather unique.) Thx.</p>