Hope Credit

Parents Forum
1

<p>I need advice on how to figure our Hope Credit regarding my daughter’s freshman expenses.</p>

<p>Can I allocate how the scholarships should be spent? Can I first allocate the books & laptop against certain scholarships under the Scholarship section in IRS Publication 970 on pages 5-6, and use the remaining scholarship amounts to reduce the tuition & fees for the Hope Credit?</p>

<p>I feel that if scholarships state that they can be allocated for books or whatever, then you should be allowed to do it, before figuring the Hope Credit.</p>

<p>I did a spreadsheet on the total expenses & scholarships. The combined books of $261.,
I allocated from one of the $500. scholarships that I could use for books. The laptop of $1420., I allocated from the $600. & $750. scholarships. The tuition and fees of $5644. and the enrollment confirmation fee of $160., totaling $5804., I allocated from the remaining scholarships totaling $3547.</p>

<p>Then I took the $5804. (tuition, fees, enrollment confirmation fee) and subtracted the $3547. (remaining scholarships) and came up with $2257. The $2257 would be the qualifying expense on the Hope & Lifetime Learning Credits form, IRS Form 8863, Part I, Box ‘c’.</p>

<p>Or do I have this all wrong?
Could it be that that the qualifying expense on Form 8863 should be $486? (On the 1099T, amount billed is $5644 in Box 2 minus Scholarships $5158. in Box 5 = $486.) </p>

<p>I am thinking the enrollment confirmation fee of $160. is a qualifying expense. I will call the university tomorrow.</p>

<p>Scholarships. IRS publication 970 pages 5-6
It appears qualified educational expenses, for purposes of tax-free scholarships, are expenses for: tuition and fees required to enroll or attend, course related expenses, such as fees, books, supplies, and equipment that are required for the courses and must be required of all students in your course of instruction.
This means that our daughter’s tuition & fees, possible enrollment confirmation fee, books, and laptop are qualified expenses. But what if we paid some of those expenses out of pocket?</p>

<p>Hope Credit. IRS publication 970 pages 10-12
It appears qualified education expenses are: tuition & certain related expenses required for enrollment or attendance; student activity fees, expenses for course related books, supplies, and equipment only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.
This means only our tuition & fees, and possible enrollment confirmation fee. </p>

<p>On the 1099-T, Box 2 amount billed is $5644. and Box 5 scholarships is $5158.
The enrollment confirmation fee of $160. is not included in Box 2. I don’t know why the university is not considering this as a qualifying expense; but I think it should be.</p>

<p>Expenses:
Tutition $4250. and fees $1394. = $5644.
Activity fee $8.
Enrollment confirmation fee for freshman’s $160. (not included on 1099-T).
Book & packet – $93. customized, new, & required for a course, had to be purchased from bookstore
Books $168. required for courses, purchased from bookstore, Amazon, & Ebay
Laptop $1420. – school states students are expected to own a laptop, a class required all students to bring their laptops to class as the students were required to do activities on their laptops. Purchased laptop through school’s laptop program which connected me to Lenovo. I charged it to my credit card.
On campus Room & meals $3575.</p>

<p>Scholarships:
$2500. can be used for tuition, fees, housing
$500. can be used for tuition, fees, housing
$500. can be used for tuition, fees, books, on campus room & board
$308. reciprocity used for tuition
$600. can be used for whatever
$750. can be used for educational expenses
Total is $5158.</p>

2

<p>My interpretation is that you can allocate scholarships to expenses you choose as long as they are not specified to be for certain expenses. Using them for non qualified expenses (anything other than tuition/fees/required books)would make them reportable taxable income for your student but as a family you would probably be better off with the credit (and can repay her any extra taxes she might incur).</p>

3

<p>So does this mean that I cannot allocate the laptop to two of the scholarships and the books to another different scholarship?</p>

4

<p>A laptop has been denied by IRS as a required equipment/qualified expense, even it is purchased through a college.</p>

<p>New regulation, applicable to 2009 on, considers a laptop as a qualified expense for a certain credit.</p>

5

<p>Erghhh....my accountant told me books are not considered a deduction in that sense. what is the case?</p>

6

<p>There is a lot of disagreement about this. In IRS 970 The rule for taxability of scholarships says qualified expenses include tuition/fees and required books. For the Hope credit the rule says that qualified expenses include tuition/fees and required books that are required to be purchased through the school. Some people interpret the Hope credit rule and think it applies to the scholarship taxability rule. As each education tax benefit has separate rules I don't know why people read the Hope rules and apply it to the scholarship rules (for instance room and board is allowed for 529 account withdrawals but not for other benefits). Most tax guide books say required books are allowed for scholarships. (I am not a tax accountant).</p>

<p>From the IRS website
ITG</a> FAQ #1 Answer-Are amounts paid to students for scholarships taxable and if so, how do we report them?</p>

<p>
[quote]
A qualified scholarship is defined as any amount expended for "qualified tuition and related expenses." Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of a student at an educational institution, fees, books, supplies and equipment required for courses of instruction at such educational organization.

[/quote]
</p>

<p>From IRS970 page 6(for allowable expenses when calculating taxability of scholarships)
<a href="http://www.irs.gov/pub/irs-pdf/p970.pdf%5B/url%5D"&gt;http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a>

[quote]
• Tuition and fees required to enroll at or attend an
eligible educational institution, and
• Course-related expenses, such as fees, books, sup-
plies, and equipment that are required for the
courses at the eligible educational institution. These
items must be required of all students in your course
of instruction.

[/quote]
</p>

<p>From page 12 related to the Hope tax credit

[quote]
Related expenses. Student-activity fees and expenses
for course-related books, supplies, and equipment are
included in qualified education expenses only if the fees
and expenses must be paid to the institution as a condition
of enrollment or attendance.

[/quote]
</p>

<p>For 2009 and 2010 the new tax credit does allow books so perhaps that will reduce the confusion for future years.</p>

<p>Computer equipment will be allowed as a qualified expense in 2009 & 2010 tax years for 529 account withdrawals.</p>

7

<p>Thank you Swimcatsmom. That explanation really helped. So would a musical instrument (for a music major) be considered necessary equipment?</p>

8

<p>In Publication 970 pages 5-6</p>

<p>I understand that books are a qualified expense under scholarships.</p>

<p>It also states that equipment is a qualified expense as long as it is required of all students in the course. This could mean a laptop that is required in a course.
But under 'Expenses that do not qualify', qualified education expenses do not include the cost of equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. And this could mean a laptop that is required in a course. Go figure.</p>

<p>Under the Hope Credit, the books & laptop are not qualifying items. So, if I allocated the scholarship money to these items, shouldn't only the balance of the scholarship money be used to reduce the tuition & fees for the Hope Credit?</p>

9

<p>I have been reading the article, "Navigating the Form-1098-T Tuition Statement: Inconsistencies in Reporting" quite a few times, especially starting from the 6th paragraph from the bottom & clicking on Exhibit 3.
<a href="http://www.nysscpa.org:80/cpajournal/2005/905/essentials/p54.htm%5B/url%5D"&gt;http://www.nysscpa.org:80/cpajournal/2005/905/essentials/p54.htm&lt;/a>
<a href="http://www.nysscpa.org/cpajournal/2005/905/images/ex3p59.pdf%5B/url%5D"&gt;http://www.nysscpa.org/cpajournal/2005/905/images/ex3p59.pdf&lt;/a> </p>

<p>I understand it that if the scholarship is not restricted to tuition only; the formula for figuring out the Hope Credit to be in my situation would be:
$5158. Scholarships & grants
-$1350. Less: (laptop) Required books, supplies, & equipment
- $261. Less: (books) Required books, supplies, & equipment<br>
$3547. Net scholarship & grant income
-$5804. Less qualified tuition & expenses
-$2257. Positive amount is scholarship income (Negative amount is available for education credits or tuition & fees reduction.</p>

<p>It seems that the $2257 is the Qualified Expense for the Hope Credit.
And it appears that none of the scholarships are taxable.</p>

10

<p>Is shirroo correct in explaining or showing the formula to arrive at the qualified expense for the Hope Credit?</p>