How to answer Scholoarship questions (or complete worksheet) correctly (2024 & 2025)

[AJH4]

How do you answer "How much of $XXXX you received in scholoarships, fellowships, and grants was used to pay for this expense?" for dependant student where parents cannot claim Lifetime Learning Credit because of AGI?

The recommendation seems to be to apply total scholarship to Room and Board?  Why?  That would seem to increase dependant student's tax liability.  Would that also then require filing?  Or is this just a question that resolves other calculation issues? 

First assumption was to apply scholoarship to QEE first and then put remaining amount in box to answer the Room and Board question but the Interweb seems to disagree.

Wordinig to get to QEE is also awkward and does not seem to match IRS requirements.  For exmaple, TT refers to expenses "purchased from the school" and "not from the school" -- but there are QEE's that you can purchase NOT from the school and it does not look like TT gives you QEE credit if you use the other box.  It seems that the two options should be required/not required "by the school" -- unless I am missing something "from" does not seem to match the QEE intent.

[AmyC · Accepted solution]

The IRS allows a lot moving things around for the best scenario. Since the parents cannot claim an education credit, would the student be able to claim the credit if not claimed by the parents? Usually, a student does not have enough income to get any real benefit.

If the parents are claiming the student and no credit is on the line, you just want to reduce tax liability to the student and put as much as you can into QEE. Yes, the boxes are not well labelled in my opinion, this year. I am hoping the update will fix that. Thankfully, you are smart and caught the difference.

Scholarship income is a hybrid income and can trigger the kiddie tax. Less income means less tax. Once you finish, you can see if your student needs to file a return.