My daughter is graduating from college in May 2017. Her school bills for Spring 2017 in December 2016. Federal tax-free assistance is credited in January 2017. So I think her 2017 1098-t will read zero for qualified expenses and have some amount for tax-free assistance. Any ideas on how to deal with this? I will already have taken the AOTC for 2013-2015. I was planning on doing the credit for 2016 also. I’m worried that there’s going to be a big tax bill in 2017. Does any amount of tax-free assistance go into earned income for 2017 since her qualified expenses will be zero?
She might have to include the grant in her income for 2017, but you should still be able to claim the AOTC for 2016.
If she gets a full time job after graduatuion (which is the goal), she won’t be claimed as a dependent on your 2017 tax return anymore, she will claim her own exemption, plus standard deduction, and will include any grant aid in her taxable income and pay taxes on it.
There are changes for Form 1098T effective for forms issued after 12/31/15.
Schools no longer have the option of reporting amounts billed or amount paid in the calendar year. Only amounts paid in the calendar year are to be reported by the institution.