<p>@annoyingdad, you are not so annoying after all!</p>
<p>Your answer is the key answer here I was assuming reporting on 44d would have a negative impact, when in fact is has a positive(or neutral) impact, since is it subtracted from AGI(line 36) (which will be the same amount in 44d). resulting in a zero effect.</p>
<p>Furthermore the child still gets to be claimed as a dependent on parents tax return. And the amount of the scholarship probably does not get taxed at all since the child’s income is so low.</p>
<p>So now, I believe option #2 is the cleanest and most optimal solution.</p>
<p>thanks for all the answers.</p>