Simplistic example - tuition + room and board are $5.5k each, total $11k. Child takes the 5.5K federal loan, and gets a 5.5k scholarship.
I have no idea in which order the school actually applied the money, we just see 2 credits for 5.5k each, and then 2 charges of 5.5k each for the tuition and room and board.
Can I just “choose”, when doing taxes, that the scholarship was used for the tuition so it isn’t taxable income?
Yes…you can apply the scholarship to tuition. UNLESS…it’s a scholarship that is specifically awarded for room and board.
You can also add in the cost of books to the tuition costs.
What @thumper1 said. However, you may consider reporting $4000 of the scholarship as taxable income and claiming the AOTC. The taxes on $4000 may be less than the tax credit.
This is what I will do.
Total QEE tuition and fees and books
Minus $4,000 claimed for AOTC
Equals AQEE (adjusted QEE)
Total scholarshops and grants (can be used for any expenses) minus AQEE equals taxable part of scholarships.
I agree. I understand that OP’s numbers are “simplistic,” but it’s quite possible that if the scholarship money is reported as taxable, all of the student’s taxable income will be covered by the standard deduction and therefore no tax will be owed. A significant education tax deduction might then be claimed by the parent(s).
For example my son has $7,600 of tuition, fees and book expenses (QEE).
I will use $4,000 to claim AOTC.
So AQEE is $3,600
His total scholarships and grants are $7,700 so taxable amount will be $4,100.
Since your son contributed $5,500 to his expenses with his loan, make sure you have contributed more than that to his support this year, to be able to claim him as a dependent. Scholarships are not counted in the support test.
Correction: this should say “education tax credit” (too late to edit the post).
Thanks everyone for the info!
My daughter had two scholarships that could only be used for tuition, but I just added up all the scholarships and subtracted the QEE and reported the rest as taxable. No one ever asked for it to be broken out (like the IRS).