Q1. Books and materials required to be purchased from school ___________. I was thinking $1,100 (materials fee + other fees above)?
A1. Yes
Q2. Books and materials NOT required to be purchased from school ___________. I was thinking $800?
A2. Yes.
Q3. Total used to pay for room and board with a scholarship or grant ___________. I was thinking $5,000 (the net 1098-T amount above).
A3. It would be $3100. You can claim $7500 of the scholarship went to tuition and $1900 went to books, etc.
But it depends on whether you (or him) are eligible to claim the tuition credit. If so, you answer $7100 (to claim the AOC, you are only going to allocate $3500 of tuition to scholarship to , so that you can allocate $4000 to the AOC. See "loop hole" below
"He received the American Opportunity Credit (AOC) for the past 3 years".
Do you mean you received it on your return because you claimed him as a dependent? He's not eligible for the AOC. See "myth" below.
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There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket. She would only need to report $5000 of taxable scholarship income, instead of $6000.
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There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit.
You cannot claim the (up to) $1000 refundable credit if you are, or can be, claimed as a dependent by someone else.
Reference: Line 7 instructions for form 8863.
https://www.irs.gov/instructions/i8863#en_US_2024_publink53002gd0e674
The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.
