Hello, I claim my son as a dependent and am trying to determine if I can claim the AOTC. Here are the details.
Qualified expenses $3,500. This includes a QTP distribution
Room and Board $5,000
Total Scholarships $9,000
Pub 970 says you can include scholarship money in income to claim the credit but it says that amount can’t be more than the non qualified expenses. His non qualified expenses are only $5k so if he includes the $9k of scholarship income then that is more than his room and board. Any thoughts as to how to claim the AOTC or I am just out of luck? He received a refund from the school of $5k, this was after paying all tuition and dorm costs.
What does this mean? Did a QTP distribution (529 money) pay for $3,500 of qualified expenses? Or was the remaining amount of qualified expenses $3,500 after the QTP distribution? What were the “qualified expenses”? What was the total amount of QTP distribution?
$2k of the $3,500 came from a QTP paid directly to the school. This covered the tuition. $1K for a laptop which I have heard can be claimed as QEE and $500 in books.
How much was tuition, and how was tuition paid?
How much were fees, and how were fees paid? (And what specifically were the fees for?)
It looks like you won’t be able to claim the AOTC, unless you declare as taxable part of the scholarships that would normally not be taxed, but it’s hard to give any useable advice without having a really clear picture of A) what all the expenses were, and B) what money was used to pay each of those expenses.
Edited to add: just re-read and saw that $2k of 529 was used to pay tuition. You could also have used 529 money to pay for the computer and books.
Yes, $2K was for tuition and qualified fees. I understand that he could claim part of the scholarship as income but does that become an issue when looking at pub 970 page 15 where it says you can’t claim more scholarship taxable income than the actual non qualified expenses? His non qualified expenses were $5k for room and board, but at a minimum he has to claim $5,500 as taxable scholarship money ($9k scholarship less $5,500 QEE). I don’t mind having him claim scholarship as income, I just don’t know if it creates a problem based on the language on page 15.
So if he claims an additional $2k as taxable scholarship he would then be declaring $7,500 as taxed but that is more than his non qualified expenses. Does that make sense or am I reading 970 wrong?
Was the room and board paid to the college, or is the $5,000 what was paid for off-campus expenses?
Two things:
-The numbers are low for two semesters; are these numbers for fall of freshman year (2017)?
-To reduce the scholarship amount that will be taxable, scholarship money should have been used to pay for tuition and fees (not the 529 money).
Here’s what I’m seeing:
$2,000 – Tuition and fees – Paid with 529 funds
$5,000 – Room and Board – Paid with scholarships (taxable)
$500 – Books – Paid out of pocket
$1,000 – Laptop computer – Paid out of pocket
$4,000 in excess scholarships – taxable
I’m perplexed by your use of the 529 funds. You spent 529 money on something that would have been better paid for with scholarship money, in order to shield at least some of that from taxes, and you spent out-of-pocket money on two things (the laptop and books) that are qualified expenses for 529 money. The books are also qualified expenses for tax-free scholarships. I just don’t get it.
I’m sorry, let me rephrase. the 529 is actually a Florida prepaid account so that is why it was only used for tuition. The numbers are for the fall 2017 only. This is why I paid out of pocket for the laptop and books. The florida prepaid was for tuition only, the scholarships covered room and board and then he was issued a refund. See below:
The only other qualified fees are the books and laptop. I have heard it both ways on the laptop, I have spoken to tax people who have said it is a required piece of equipment because the students need to have it. I know my son has to use it to watch lectures, etc.
So are you thinking that the $9K in scholarships is taxable less $2k in tuition paid by florida prepaid? If he claims the prepaid 1099q earnings as taxable then can’t he deduct the expense the prepaid paid?
Since I paid the books out of pocket can I claim that as AOTC?
Yes, he has a 1098T. Basically just shows the $2k as being paid. The computer isn’t a requirement but isn’t it fair to say that without one it would be impossible for a student to succeed? There are 50k students in the school, the school library doesn’t have 50k laptops. I am just playing devils advocate, not trying to be difficult. Have you seen the IRS disallow a computer for the AOTC?
If you don’t offset the tuition by the Florida prepaid, then you still end up with $9,000 in taxable scholarships.
You cannot use different aid sources for the same expenses.
Did he have income from a job?
He would get a $6,350 standard deduction as a dependent, if he has no other income.
Yes, you can claim a partial AOTC.
Since my D has a tuition scholarship and grant for room and board, we just claim qualified fees and books for AOTC and she reports the grant as taxable income.
Can I use room and board to offset the florida prepaid distribution (taxable earnings portion), even though the florida prepaid was only used for tuition and the scholarship money paid for room and board?
He does have $3k income from a job this year, next year it will be double but he will also get a $12k standard deduction next year. Thank you all for your feedback.
If the computer isn’t specifically required for enrollment or attendance (for example, listed as a required item on a course syllabus), then it’s not a qualified expense for the AOTC.