<p>Can someone point me in the direction of some clear info about who gets to take what credits or deductions for paying tuition? We've read the IRS stuff over and over, and it's SOOOO confusing! </p>
<p>In our situation, we have divorced parents, and each parent takes one child as a dependent on taxes. (Divorce documents specify who claims which child as a dependent). Both children are in college. </p>
<p>One child has full scholarship, and so nobody in the family is paying anything toward tuition, room, board, fees, etc. This one lives on campus, otherwise lives with the parent who claims him as a dependent.</p>
<p>The other child is not on scholarship. Although one parent takes him as a dependent, both parents are contributing equally toward tuition and fees. The student is paying for his own books. He lives full-time (not in dorm) with the parent who is not taking him as a dependent.</p>
<p>(to clarify, both kids live with the same parent, but are dependents of different parents)</p>
<p>Only the person who takes the exemption for a student can claim the tax credits. If the student is not a dependent on your return (whether they are a dependent on another person’s return, or claiming their own personal exemption) you can not claim the credits or exemptions for that student.</p>
<p>Thanks swimcatsmom. I really wish I had known all this when getting divorced all those years ago! Of course, who knew back then what the situation would be now that the kids are in college. Kind of sucks to pay 1/2 the tuition and not get to take a credit for it. Oh well. </p>
<p>Now…what do I do with the money I saved in a 529 for the kid who now doesn’t need it? Save it for graduate school and hope he doesn’t get full scholarship there too? LOL!</p>
<p>It sounds to me that you and the ex should split the tax deduction 50/50 to be fair.</p>
<p>The fact that one parent doesn’t receive a deduction because the student got a scholarship and the other parent does receive a deduction because the student didn’t get the scholarship (when both parents contribute equally) is unfair.</p>
<p>I think it would be reasonable to split the deduction 50/50. Hopefully you and your ex are on agreeable terms.</p>
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<p>You can roll it into your retirement if you want, but you’ll have to pay a penalty.</p>
<p>Or you can use it to go to school yourself if interested.</p>
<p>The 529 rules may vary by state, but in my state:</p>
<p>“If the beneficiary receives a scholarship that covers the cost of qualified expenses, you can withdraw the funds from your account up to the amount of the scholarship without penalty or additional tax. The earnings portion of the amount withdrawn will be subject to the additional federal regular income tax of 10% to the extent the amount withdrawn exceeds the amount of the scholarship. No <state> income tax is due on such a distribution.”</state></p>
<p>So you can take out money up to the scholarship amount with no tax penalty.</p>
<p>Also, in our state you can change the beneficiary of the 529. So if your 529 is not fully funded for the kid without scholarships, you can change it so they are the beneficiary.</p>
<p>Is it possible to claim the American opportunity tax credit if a student is on a full-ride scholarship? Both non-refundable and refundable parts?</p>
<p>Scholarship is taxable. Thus, it is considered an income. If you pay for educational expenses using taxable income, you can claim the tax credit as everyone else. This is my thinking. Is it correct?</p>
<p>I think I would read the IRS rules on college expenses carefully. For instance, the kid with the full scholarship (lucky you!) – do you pay health insurance for the kid? Surely you are out of pocket some costs. You might not be able to count the kid’s IPod but there may be some expenses that you are shouldering that do fit under the IRS rules.</p>
<p>Scholarships are only taxable IF they exceed the amount allowed for allowable expenses (tuition, fees). If your child’s scholarship does NOT cover the full amount of tuition and fees and you are paying out of pocket for those costs, you can use the amount YOU PAID for the tax credit…if you are declaring the child a dependent on YOUR taxes. (<strong><em>note I am not a tax expert</em></strong>). </p>
<p>So…say your tuition/fees were $30,000 and the scholarship was $10K…you would be paying $20K balance…eligible for the credit.</p>
<p>Your college kiddo should have received a 1098 T form from their college. On that form is the allowable costs and also the amount of scholarships. If the amount of scholarships exceeds the allowable costs, you are not paying out of pocket for the allowable expenses.</p>
<p>Scholarship money used for room and board would be taxable. Very fuzzy on stipends for summer work as well. Schools refuse to make it easy for the IRS to demand a share of what students get. We pay our son’s bills but also have investments in his name (UTMA) and it works best tax wise for him to declare himself as the dependent. This does not affect his dependency for other situations such as insurance.</p>
<p>I’m not a tax professional either. Here’s how we interpreted the rules about what portion of scholarship is taxable.</p>
<p>S has a full+ scholarship. Covers tuition, fees, room & board plus some leftover. The money that is left over is given to him in the form of a check at the beginning of each semester. That “leftover” money is used for books and supplies (including the computer that is mandatory for his major). </p>
<p>Most of the scholarships are “general”, and since they are used for qualified expenses, they are not taxable.</p>
<p>One of his scholarships is specifically for housing, (it’s in the name of the scholarship). That scholarship is taxable.</p>
<p>It’s not <em>all</em> students. It’s mandatory for his major, at his college. And it’s a particular computer that all students in that major are required to have. It’s not a unique situation.</p>
<p>If you have a niece or nephew in college, you may want to negotiate a deal with your sibling. Use the 529 to pay and get reimbursed by the parent.</p>
<p>The scholarship money that goes towards tuition and fees is not taxable. The scholarship money that goes towards room and board is taxable to the student. The school should break this out.</p>
<p>I believe that intparent (post #5) is correct that you can remove money from a 529 plan to the extent of the scholarship without penalty, but you still owe tax on the *income<a href=“profit”>/i</a> portion of the withdrawal.</p>
<p>OP, please be aware that your kid may owe taxes as a result of his full scholarship. The amount of the monies paid on his behalf, without including Tuition and some miscellaneous amounts, is usually taxable.</p>
<p>Swimcatsmom seems to me to be the expert in this field.</p>