<p>You did not give the amount for books, but let’s say for example purposes it is $700.</p>
<p>Let’s also assume that the combined income for you and your husband is less than $160,000, meaning you are fully eligible for the American Opportunity Credit, and also assume that you had enough tax liability to make you fully eligible for the AOC - for both the refundable and non-refundable portions.</p>
<p>Does the $9570 cover ALL of his room and board costs? I’ll assume yes.</p>
<p>Refer to IRS Pub. 970 - <a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a> I’ll use their terminology.
Page 3-7 discuss taxable scholarships/grants, page 8-19 the AOC… </p>
<p>His qualified education expenses - QEE (tuition, fees, required books) = $36110 + 700 (my “example” book amt) = $36810</p>
<p>Since you would benefit more by taking the AOC for the book amount rather than your son deducting it to reduce the taxable part of the scholarship, we’ll “count” the books as being paid for out-of-pocket and figure that the scholarship went for the other $36110 of QEE. So 45680 - 36110 or $9570 get listed as scholarship income (marked “SCH” as hoosiermom noted) on HIS 1040EZ. </p>
<p>On YOUR married-filing-jointly return, you claim the book amount ($700 in the example) as the American Opportunity Credit, since we’re counting it as NOT being paid for by the scholarship, but out-of-pocket. Fill out Form 8863, and put the $700 (or whatever) on the appropriate line of 1040 as directed on form 8863 and its instructions. (in your case, this will be a different situation, since your “helpful and oh-so-knowledgeable” tax preparer will now need to file an amended return.)</p>
<p>Your son’s tax is due NOW (April 18), even if you were to file an extension. Just do the 1040- EZ - very simple. “SCH” to indicate the taxable portion of the scholarship, plus include any income he had from a summer job, work-study, etc. Should take just a few minutes - don’t pay to have it done!</p>
<p>About your tax preparer, you said “They entered the grant total and tuition in our return” - make sure that this is corrected in the amended return so that YOU are not paying any tax on the $9570! – everything that swimscatmom said in her post #2 is correct.</p>