Q. Does she still qualify for the American Opportunity Credit ?
A. Even if the $1983 scholarship, received in 2021, was reimbursement for 2020 expenses, you have the option of treating it as received in 2021. This means you may have to "deal with it" on her 2021 tax return.
I assume the difference between $1482 and $1,727 is accounted for by books and other qualified expenses.
You have another option: you can declare the $1250 scholarship as taxable income, on the student's tax return, to free up that $1250 to qualify you for more AOC.
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There is a tax “loop hole” available. 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 school’s billing statement specifically shows the scholarships being applied to tuition or 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.
