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college room and board taxable?where enter in app or on form? related to a FAFSA question on the same

If some of a child/student's scholarship is used by the child/student, to pay room and board, is that taxable? If so, what line on the 1040 does that go on, or is there a form for that you normally fill out, that then rolls up into the 1040 ?  or where in the step by step of the app. We thought we DID account for it as taxable on our 2022 return, but don't know where to look.  Plus we need to know how to do it on the 2023 version.  One important point though, in case that matters -The student's college *requires* the student to live on campus for the first two years. My question also ties into a parent being asked the question on the FAFSA of: “ Amount of college grants, scholarships, or AmeriCorps benefits reported as income to the IRS . The parent pay taxes on these grant scholarships or benefits .”
 
 
 
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1 Reply
Hal_Al
Level 15

college room and board taxable?where enter in app or on form? related to a FAFSA question on the same

Q. If some of a child/student's scholarship is used by the child/student, to pay room and board (R&B), is that taxable? 

A. Simple answer: yes. R&B are not qualified expenses for a scholarship to be tax free. 

 

Q.  If so, what line on the 1040 does that go on? 

A. It goes on line 8r of Schedule 1 and ends up on line 8 of form 1040. 

 

Q. Is there a form for that you normally fill out, that then rolls up into the 1040 ? 

A. No. TurboTax (TT) does the calculations on the student info worksheet and "rolls it up" to line 8r of Sch 1.

 

Even though, a scholarship was actually  used to pay R&B, at tax time, you are allowed to allocate expenses any way you want for the best tax benefit, unless the scholarship was restricted to R&B (unusual). If any of the scholarship is taxable, it is reported on the student's return, not the parent's.  It does not matter that the student was required to live on campus.  For more specific advice, provide actual numbers. 

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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 (the scholarship money has essentially been allocated to none qualified expense, like R&B).  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.

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”.

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