My daughter received a 1098T that has $5,500 (rounded for simplicity) and $4,000 in scholarships. The $5,500 breaks down to $4,500 for tuition and $1,000 for fees. I noticed that we paid more than that in fees. Specifically, $200 for a student health service fee, $100 for a transportation fee and $15 for a refundable alumni fee. These were all mandatory fees in that we did not have a choice on whether to pay them. Clearly, from the 1098T $1,500 can be used for the AOTC education credit. So, I am looking to see how I can claim more than that, as $4,000 in expenses would max out that credit. There’s also $200 for books. First question I have is for the fees I mentioned above. My gut is because they are not included in the 1098T, that they cannot be used for the AOTC. But they are mandatory. I know the verbiage for the AOTC pub says medical expenses and transportation, but does that just mean my medical insurance and transportation to/from school. Or does it mean these fees as well? If they cannot be used for the AOTC, can they be used for 529?
The Health Services Fee and the Transportation Fee are not QEE for the AOTC. It’s probably a good bet that the school feels the Alumni Fee is also not a tax credit QEE, given that it was left off of the 1098-T.
From IRS Pub 970, page 17 (American Opportunity Credit):
Qualified education expenses don’t include amounts paid for:
• Insurance;
• Medical expenses (including student health fees);
• Room and board;
• Transportation; or
• Similar personal, living, or family expenses.
This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.
The 529 Chapter in Pub 970 does not have this same kind of language relating to specific expenses that do not qualify as QEE, but I think the smart move here is to also apply this guidance to 529s, unless the expenses are explicitly allowed as QEE for 529s, such as room and board for students who are enrolled at least half-time.
Thanks. I just read through the thread last summer where you went back and forth about that. I decided to play it safe here and not include them given they are not on the 1098T and what you just posted from Pub 970. I actually have enough 529 expenses anyway.
@privateID I might be late with this if you’ve filed already, but in case not: If your concern is maximizing the AOTC, be sure to read the section in pub 970 that explains how to coordinate scholarships and tax credits. You might be able to claim some of the scholarship as student income in order to claim all/more of the tax credit.
(I disagree with taking language defining qualified expenses for tax credits and applying that language to the use of QTPs, but it sounds like it doesn’t matter in your case).
Thanks. I have not filed yet but I did complete them. As you mention, I was able to claim some of the scholarship as student income. It did increase her state taxes, but overall we came out a couple hundred ahead.
That’s not what I said.
It is still not clear to me that all of these fees cannot be used for the AOTC credit. The student health fee is explicitly mentioned in Pub 970, but transportation to me is getting to/from school, not a mandatory transportation fee charged by the school. It explicitly mentions for medical expenses that it includes student health fees. It does not explicitly mention under transportation that transportation fees charged by the school are not allowed. As for the refundable alumni fee, that I have no idea how it is refundable, it is not mentioned at all. However, for such small amounts, I’d rather just match what’s on the 1098T.
I agree Pub 970 could use a rewrite around this issue.
I view it this way: the section of the tax code defining the AOTC and LLC specifically excludes “nonacademic fees” from “qualified tuition and related expenses.” That section names a few such fees and then a blanket statement that excludes expenses not related to the student’s “academic course of instruction.” Pub 970 provides examples of such expenses that don’t qualify, but without a clear expression of the general exclusion.
That general exclusion is probably a more helpful tool when you’re deciding which fees are and are not qualified.* So, I don’t think those fees you’ve listed are qualified expenses for the tax credits even though the school requires you to pay them.
*adding to the confusion is that “student activity fees” are also specifically excluded, but IRS guidance has specifically included those (as qualified) if they’re required and so the institutions generally include them on the 1098t (there are good reasons for this, but it can add confusion).
And then, adding another layer of potential confusion, the section of the code outlining QTP (529) benefits is based on a definition of “qualified higher education expenses” which is not the same as the definition of “qualified tuition and related expenses” used for tax credits. The definition of “qualified higher education expenses” does not have the same language excluding nonacademic fees. So, fees that aren’t qualified for the purposes of tax credits might be qualified for QTPs.