AOTC and excess scholarships

[confused60]

Turbotax is not giving me the AOTC and we meet all of the requirements to be eligible. We claim our son as a dependent. He received a 1098-T. Box 1 shows 14,181.16 and box 5 shows 33,090.43. I prepared a 2023 tax return for my son reporting 18,909.27 as income. What am I doing wrong?

[SusanY1]

You need to make a manual adjustment to Box 5 to reduce that amount by the $18,909 that was reported as income on his tax return.  That will then calculate the credit for you.  

[Bsch4477]

What you are doing wrong is having all education expenses paid by the scholarship so you paid nothing out of pocket and can claim no expenses. This fix is to have the student pay $4,000 more in income so you can claim $4,000 as education expense. 

[confused60]

I changed the amount in Box 5 from 33,090 to14,181 on my return under Education, Expenses and Scholarships (1098-T), but it didn't change my results.

[SusanY1]

Ah, yes, I didn't do the math there.  With those numbers, it gives the appearance of a wash - then your expenses are zeroed out by expenses. 

Therefore, as Bsch4477 indicates, the income from the scholarship should be increased by $4,000 (on both returns) to generate a credit.  

[confused60]

Excuse my TT ignorance here, but where exactly do I need to make the 4,000 adjustment to my return and my sons return in TT?

[Bsch4477 · Accepted solution]

No apology necessary. This is a complicated issue. 

On your return, go to deductions and credits >Education>Expenses and Scholarship and enter $4,000 in box 1.  Nothing else. 

Now in your son’s return go to the same area and in Box 5 enter $22,909.  Nothing else. 

The result is that you paid $4,000 of your own money as an education expense and your son didn’t use $4,000 of his scholarship so he pays more as income. Be aware that he will pay income tax on that amount and you will see that the program will have you deal with Kiddie Tax so some of that income is taxed at your marginal tax rate.

[confused60]

Thank you so much - this did the trick! I missed out on the AOTC on my 2021 and 2022 taxes because I couldn't figure out how to get Turbotax to compute my education credit. I appreciate you Expert Advice.

[Bsch4477]

You can amend your previous returns to get the credit if you want.