How do I know how much of my sons scholarships and grants went to room and board? Does 1098T show that? Tuition alone was higher than grants and scholarships.

[jwjw1998]

I don't know if the scholarships and grants went to the tuition first, since tuition due was higher than the scholarships and grants.  And we then paid for room and board with loans and cash.

[Hal_Al]

If the school doesn't tell you that breakdown (and they usually don't), then you are allowed to allocate the expenses any way you want.

There are three things you can do with your Qualified educational expenses (QEE):

1. Allocate then to scholarships (so that the scholarship remains tax free)
2. Use them to claim an education credit
3. Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable

So, using an example: You have no 529 distribution. You have $5000 in box 1 of the 1098-T and $3000 in box 5.  You need $4000 of QEE to claim the maximum American Opportunity Credit (AOC). When asked how much of the scholarship went to room & Board, you answer $2000.  That means only $1000 of the scholarship is allocated to tuition.  $5000 - 1000 = $4000 can be claimed by you for the AOC. 

[jwjw1998]

Thanks, but I'm still a little confused.  The following are estimates.  So I had 13K in box 1 and 10K in box 5. Federal loans covered some of the costs.  We wrote a check for 6K.  What does that mean?  

[Hal_Al]

Expanding your example: The loan money was $5000.  Books and computer (like tuition,  qualified educational expenses [QEE]) was $500 and Room & Board (R&B) was $7000.

Sources of Funds                                               Expenses          

Scholarship  $10,000                                        Tuition   $13,000

Parents               6,000                     Books & computer       500

Loans                  5,000                      Room & Board           7.500

            Total      21,000                                   Total              21,000

Now, you allocate for the best tax advantage.  You allocate $4,000 of tuition to the Parents money, so they can claim the tuition credit. You allocate the remaining $9,000 of tuition and the $500 Books to the scholarship, so that it can remain tax free.  The student has to declare $500 (10,000 - 9000 - 500 = 500) of his scholarship as taxable income because it wasn't used for (allocated to) QEE.  Effectively $500 of the scholarship was used for R&B.

[jwjw1998]

Thank you!  In our case our son isn't filing since his income was under the amount required to file.  We claimed him as a dependent and filed the 1098T under our name.

[Hal_Al]

$500 more income will probably not  change the fact that he does not need to file a tax return.  BUT, you may want to have him do so anyway, to document the reporting of the scholarship income.  On the other hand, the slight risk of an IRS inquiry may not justify the cost of TurboTax program (I don't think he will be able to use the free version).