How much of scholarships do you want to allocate to "room and board and noneducational expenses?" Help

[serchey]

Hello @Hal_Al , 

I am filing our taxes (single under $60,000 income) and I am stuck on this question:

" How much of the $2,740 received in Pell grants and scholarships do you want to allocate to room and board or other noneducational expenses? "

Here is the info I entered so far into each of the questions asked:

I filed my 1098-T form with box 1 = $1,415.25 (tuition) and box 5 = $2,740 (scholarships)

Did I pay for books or materials for school? YES

Cost of books and materials that you had to buy directly from the school: $0

Cost of books and materials that you didn't have to buy directly from the school: $250

Your 1098-T reported $2,740 in scholarships or grants. Did you receive any other scholarships or grants not reported on a 1098-T? NO

Do you want to allocate part of your Pell grants or scholarships to room and board or other noneducational expenses such as travel, research, or certain equipment? YES

How much of the $2,740 you received in Pell grants and scholarships do you want to allocate to room and board or other noneducational expenses? ????

How do you figure this number? I am trying to get the refund owed to us, not anything extra or unusual, I am just not sure the best way to answer this question and be accurate. Please help if you can, I am about frazzled with this. Thank you in advance.

[Hal_Al]

It takes $4000 of tuition and other qualified educational expenses (QEE)  (e.g. books) to get the maximum American Opportunity credit (AOC).  That's you goal: free up as much QEE as you can to claim the credit, which you can't do when the scholarship is allocated to QEE.  By allocating the scholarship to room & board (R&B) a non qualified expense, you free up QEE for the AOC.  You allocate all you can, up to $4000. 

So, in your case, you allocate all $2740 to R&B.  That allows you to claim the $1665 QEE  (1415 + 250 = $1665) for the AOC. The AOC is 100% of the first $2000 QEE and 25% of the next $2000.  You will get a $1665 credit.

Your student will have to report $2740 of taxable scholarship on his tax return.  If he has no other income, he will pay no actual income tax, because his total income is less than the $14,600 filing requirement.