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lancexnz
Returning Member

Question about scholorship

My son was a college freshman. In 2016, He received $2,500 to pay for tuition and I helped to pay $1,700. He also got $1,600 housing aid from college to pay for room and board and I paid another $3,500. TurboTax only asks how much of that $4,100 (2,500+1,600) was used to pay for room and board. Why it won't ask for that for tuition?

1 Best answer

Accepted Solutions
KrisD
Intuit Alumni

Question about scholorship

The program is asking how you want to handle the tax-free assistance first.

Of the $4,100 tax-free assistance, how much of that do you want to apply to Room and Board?

Whatever you don't apply to Room and Board, will be applied to tuition.

You don't say what the tuition and fees amount paid to the school is. You should have gotten a 1098-T, which you would report. You also want to check the student's school account records.

The American Opportunity Tax Credit is the most valuable credit, and the maximum credit is based on $4,000 worth of education expenses not paid with tax-free assistance.

If your son's 2016 tuition was $4,200 (2,500 + 1,700) then you might want to apply $3,900 to room and board. This would apply 200 to tuition, leaving 4,000 tuition to apply to the credit. The 3,900 used for room and board is reported as taxable income on the student's return.

The credit should be more valuable to you that what the student needs to pay as tax on the scholarship income that went to room and board.

The IRS is lenient about allowing taxpayers to claim the best education credit they are eligible for.

Click the link below for examples the IRS gives for maximizing the credit by allocating tax-free assistance as taxable income for the student.

CLICK HERE for IRS Pub 970 Tax Benefits for Education




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7 Replies
KrisD
Intuit Alumni

Question about scholorship

The program is asking how you want to handle the tax-free assistance first.

Of the $4,100 tax-free assistance, how much of that do you want to apply to Room and Board?

Whatever you don't apply to Room and Board, will be applied to tuition.

You don't say what the tuition and fees amount paid to the school is. You should have gotten a 1098-T, which you would report. You also want to check the student's school account records.

The American Opportunity Tax Credit is the most valuable credit, and the maximum credit is based on $4,000 worth of education expenses not paid with tax-free assistance.

If your son's 2016 tuition was $4,200 (2,500 + 1,700) then you might want to apply $3,900 to room and board. This would apply 200 to tuition, leaving 4,000 tuition to apply to the credit. The 3,900 used for room and board is reported as taxable income on the student's return.

The credit should be more valuable to you that what the student needs to pay as tax on the scholarship income that went to room and board.

The IRS is lenient about allowing taxpayers to claim the best education credit they are eligible for.

Click the link below for examples the IRS gives for maximizing the credit by allocating tax-free assistance as taxable income for the student.

CLICK HERE for IRS Pub 970 Tax Benefits for Education




View solution in original post

lancexnz
Returning Member

Question about scholorship

Thank you very much for your reply. I am sorry if I explained clearly about it. The thing is that, my son got $2500 scholarship and all that went to tuition payment. I paid extra $1700 for his tuition. So the total was $4200 for tuition. On the other hand, he also received another $1600 housing aid and all that went to room and board. I paid extra $3500 for his housing. That was a total of $5100. That means we together paid $9300 for tuition and housing, including $4100 ($2500+$1600) he received from his college. If TurboTax asks how much went to room and board and I reply $1600, then the software may thing he had an extra income of $2500. But that's not the case here.
KrisD
Intuit Alumni

Question about scholorship

No, the software shouldn't think your son got 2500 income because you reported the tuition. It is not income if it is applied to tuition. Did you enter the 1098-T? What was in the boxes that you entered?
KrisD
Intuit Alumni

Question about scholorship

I would assume box 2 had 4200, and box 5 was 2500. And you entered anther scholarship of 1600. So that's 4100 in tax-free assistance and 4200 tuition expense, no taxable income to the student, credit on $100.    IF YOU apply 1600 for room and board, that leaves 1600 taxable income for student and credit on $1,700.   IF YOU apply 3900 to room and board, this leaves 3900 taxable income to the student and credit on $4,000, which means a 1500 off your tax liability and a $1000 refundable credit in the form of a refund. If you don't have at least 1500 in tax liability, claim less in Room and Board until you get just the right balance of taxable income to the student and a credit for you. It is a little confusing.
KrisD
Intuit Alumni

Question about scholorship

Unless the 2500 is restricted to be used ONLY for tuition, you can move it to room and board.
lancexnz
Returning Member

Question about scholorship

Yes, I enter 1098-T. Box 2. Amounts billed for qualified tuition and related expenses: $4123 and Box 5: $2500,
lancexnz
Returning Member

Question about scholorship

Your reply is very helpful. Thanks again!
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