Can child claim AOTC is I claim her as a dependent? Also TT saying most of her scholarship money needs to be reported as income?

[heidimay]

 TT says my child needs to claim over $4367 as income (in addition to her job at the school cafeteria) because TT says she got more financial aid than she needed.  This I don't understand b/c on her 1098-T it shows tuition of $14842 and scholarships of $6323 that were paid directly to the school. Her 1099-Q reports distributions of $7719, of which I used $2477 for tuition and $5240 for rent  (I just venmo her food money and never claim it, and she lives in an apt off-campus).  If I subtract the $6323 scholarship from the $14842 tuition, that still leaves $8519 tuition due. TT also asks if the entire scholarship amt is for 2023, so I marked no, $1956 is for some 2024 tuition. The 1099-Q shows a total distribution of $7717, so even though TT doesn't know what exactly I spent the 1099-Q distribution on, it could clearly have been used 100% towards tuition (since the $7717 distribution is less than the remaining $8519 due for tuition.) TT says she used her scholarship, which is paid directly to the school for tuition and other mandatory campus fees, towards "unqualified" expenses, and therefore the other $4367 needs to be reported as income. Is TT making an error on this? I really don't believe her scholarship that is paid directly towards her tuition at school should count as income, when the scholarship is less than the tuition amount, and still less than the tuition amount even if I add the 1099-Q distribution ($7717)to the amount of the scholarship ($6323, of which $4367 was used to pay 2023 tuition).

My other question was just whether my daughter can claim the AOTC if she is still my dependent? We've only claimed it 2 years so far, but I've always claimed it.  I don't qualify for the full $2500 this year, so thought maybe it would be better to have her claim it.

[Hal_Al]

At tax time it does not matter what money you used to actually pay which expenses. When filling out your tax return, you may allocate the qualified educational expenses to the AOTC, 1099-Q or scholarships as you see fit for the best benefit. TurboTax (TT) theoretically does this for you. But, it's helpful if you have some idea of the outcome.  TT determining that some of her scholarship should be taxable is a frequent result.

Q. My other question was just whether my daughter can claim the AOTC if she is still my dependent?

A. No. 

While technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out.  A student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if she supports herself by working. She cannot be supporting herself on student loans & grants and 529 plans and parental support.  It is usually best if the parent claims that credit.  
If the student actually has a tax liability, there is a provision to allow her to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit.  The student must still indicate that she can be claimed as a dependent, on her return. 

For more specific help, please re-post your info, in this format:

Provide the following info for more specific help:

• Are you the student or parent.
• Is the  student  the parent's dependent.
• Box 1 of the 1098-T
• box 5 of the 1098-T
• Any other scholarships not shown in box 5
• Does box 5 include any of the 529/ESA plan payments (it should not)
• Is any of the Scholarship restricted; i.e. it must be used for tuition
• Box 1 of the 1099-Q
• Box 2 of the 1099-Q
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
• Room/rent & board/food paid. If student lives off campus, what is school's R&B on campus charge (you can claim the lesser of the two)
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
• How much taxable income does the student have, from what sources
• How much of the AOTC are you eligible for?
• Is the student an undergrad or grad student?
• Is the student a degree candidate attending school half time or more?