<p>Hi, I don't know if anyone has come up against this, but I am trying to file taxes and do the FAFSA again for my daughter's second year of college. I'd like to take one of the Education credits, but I'm not sure if I am eligible. Her tuition and expenses for the semester were a little over $18,000. She got scholarships and grants from the school amounting to a little over $19,000. When you add in room and board, and misc., that left me with a PLUS Loan of a little over $2000, and her with a Stafford Loan just under $2000, and some work study money. Does the IRS consider the Scholarship and Grant from the school as going exclusively towards the tuition, or can the loans we took be considered as going towards tuition also? If anyone knows, I'd be grateful for a reply.</p>
<p>The publication with all the tax information is IRS 970 (prepare to be very confused).
<a href="http://www.irs.gov/pub/irs-pdf/p970.pdf%5B/url%5D">http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>Section 1. Scholarships, Fellowships, Grants, and
Tuition Reductions - pages 4-6 talks about the taxability of scholarships/grants.</p>
<ol>
<li>Hope Credit - pages 8-15 and 3. Lifetime Learning Credit pages 18 to 23 are the rules for the tax credits. Page 10 gives a flow chart showing if you can get the hope credit, page 20 gives one for the lifetime learning credit.</li>
</ol>
<p>I am not a tax expert or accountant but my understanding, after my brain stopped spinning inside my skull from reading the publication, is as follows:</p>
<p>1.Grants and scholarships in excess of tuition/fees/required books and supplies are taxable. So if your daughter recieved scholarships of $19,000 in 2007 and tuition/fees/books were say $12,000 then she must declare $7,000 as income on her tax return. If you use the tuition/fees to reduce the taxable portion of her scholarships/grants you cannot also use the same tuition/fees to claim an education tax credit. (no 'double dipping)</p>
<ol>
<li>If a scholarship specifies that it is for tuition/fees then you cannot use the same tuition/fees to get a tax credit. (For instance my daughter has a full tuition waiver so we cannot use any part of her tuition for a tax credit). If a scholarship does not specify what part of the cost of attendance it is for then you can use it to pay whatever part of the costs you choose. In that case you can say you are using the loan for tuition/fees )as long as you have not already used it for a qualified 529 withdrawal or to reduce the taxable portion of her scholarships/grants).</li>
</ol>
<p>So you need to check and see what her scholarship rules say - ie do they specify what costs they are for. (my daughter has the tuition waiver which obviously must go to tuition then two seperate cash scholarships that she can spend on any costs so we can decide whether it goes to fees or room and board or books.)</p>
<p>If the scholarship does not specify what it must be spent on then you have to decide what will get you the best 'return' tax wise. i.e. Would using the tuition/fees to qualify for the Hope tax Credit get a better $$ return than Reducing the taxable portion of the scholarship/grants.</p>
<p>I actually ended up doing an excel spreadsheet to keep track. For my son (no scholarships sadly) he was claiming the hope tax credit and we were withdrawing 529 funds so had to make sure we could maximize our (his really as we cannot claim his as a dependent for tax purposes)) tax benefits. For my Daughter (lots of scholarships) we just needed to keep track of her qualified expenses to figure out what part of her scholarships was taxable.</p>
<p>you don't count room and board or personal expenses towards amount paid for any of those credits. You can only claim books if they are 'required'.</p>
<p>you should have received something from the school showing any part of the scholarship that was taxable</p>
<p>Thank you for your input. I'm still confused, maybe my best bet is to call the school and see. I never got anything that said any part of the scholarship/grant money was taxable. With all the costs of tuition, room, board, fees, what we took out in loans compiled with the scholarship/grant from the school covered everything. Then she had the workstudy job plus her summer job savings for everday expenses.</p>
<p>Oh, and thanks for the link, I'll check it out..</p>
<p>jaesmom - you should have received a 1098-T from the school. It lists scholarships/grants and tuition and fees.</p>
<p>You will probably find the school is reluctant to give you tax advice.</p>
<p>Scholarships and grants (including financial aid grants such as pell ) that are used to pay for non qualified expenses (tuition/certainfees/requiredbooks) are taxable I am afraid. Perhaps you need to find some expert advice?</p>
<p>^^^^^^expert tax advice</p>
<p>I did find the 1098-T on my daughter's financial aid page. I never received one, and it does say that it was not mailed. I guess they expect you to look it up. I'm thinking expert tax advice is the way to go on this one, I really don't want to do anything wrong..</p>
<p>You might also ask, I remember last year some one saying to run it both ways- claiming the net scholarship gain (scholarships less tuition) and then run the return with you/your D claiming the entire scholarship, not deducting the tuition portion, and taking the tax credit- depending on the numbers that might work better and it seemed that was okay????</p>