<p>I will post this in the Financial Aid/Scholarship section but, since it is specific to UA, maybe some of you can tell me how you handled the presidential scholarship in the past.</p>
<p>We want the highest tax credit we can get, naturally, but not if it lands me in IRS hell. My son is a freshman and has the presidential scholarship. The scholarship reads that the scholarship is equal to the value of tuition but if tuition is paid by an outside source, except Academic Common Market, it can be used for other educational expenses. For all practical purposes, it is the only scholarship he has at UA we pay all other expenses. On the bursars statement for fall semester it lists all his costs ($20K R&B, tuition, fees) and the credits show the Presidential scholarship (equal to the exact tuition $) and our payments. So Im thinking for the American Opportunity tax credit I can only claim the roughly $1,000 of qualified expenses (fees/books) he has above the tuition amount. </p>
<p>The spirit of the scholarship is obviously that it covers tuition. However, is it legit to claim $3,000 of the presidential scholarship as taxable income to my son (so we have $4,000 in QEE) and take the full $2,500 AOC credit on our return? This is what IRS Pub 970 says:</p>
<p>“In some cases, you may be able to reduce your tax liability by including scholarships in income. If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses.”</p>
<p>I may be wrong about this, but I didn’t think the full tuition-only scholarship qualified – it does not deviate from the “qualified education expense” moniker. (?)
Your son will have to fill out a return, but I’m assuming you know this …</p>
<p>A lot of people on CC are doing this. My family didn’t choose to do so, though we probably could have. The consensus on CC is that the tax savings for claiming $4000 instead of $2000 and having $2000 taxed at the student’s rate is around $25.</p>
<p>I would think it would be a lot more savings than $25. My son only had wages last year of about $1,200 so if I added $4,000 of taxable income on his return he would only have $5,200 of income and I don’t think he would pay any tax. We, on the other hand, would have a tax credit of $2,500 instead of $1,000. Or am I missing something (I might be)?</p>
<p>I just wasn’t sure if you HAD to offset the whole Presidential scholarship against tuition for credit calculation purposes or if you could move some to your child as taxable income.</p>
<p>“So I’m thinking for the American Opportunity tax credit I can only claim the roughly $1,000 of qualified expenses (fees/books) he has above the tuition amount.”</p>
<p>We were under the impression this was all a parent could essentially claim, if they aren’t paying for tuition. We’ve been dealing with this with our daughter, but maybe we’ve been short-changing ourselves for the last two years …</p>
<p>If your son had a room stipend, or an outside scholarship not designated exclusively for tuition or fees, or an award for travel abroad or internship, you could do this without question, particularly if the stipend/scholarship exceeded the deduction.</p>
<p>Eerrr – let me rewind that – any stipend specified for room or board isn’t going to qualify no matter what (IRS pretty clear about that with the AOC) – Never mind on that regard. I’m just not sure if “adding” some of the tuition-only scholarship to your son’s income is necessarily a great idea, if as you say, we’re considering the “spirit” of the scholarship. If UA was relatively vague about its overall purpose/usage, then I guess I would say okay, specify some of it as “income”, and increase your AOC.</p>
<p>^^^^ You had me scratching my head for a minute there. I thought I missed something. :)</p>