Q. I received a scholarship for $10k for college that specifically states that it can be used for room and board. Do I pay tax on that?
A. Yes, most likely, since you have other scholarship monies that covered your tuition.
As the other reply said, There is a difference between "can be used" and "must be used". If scholarships and grants, exceed qualified educational expenses, the excess should be treated as income. But if that is your only income, and the taxable amount is less than $13,850, it does not have to be reported.
Tuition, fees, books and computers are qualified expenses. If box 5 of your 1098-T is more than box 1, TurboTax will automatically treat the difference as taxable scholarship income unless you tell it differently, by entering additional expenses.
The following may be the reason you were told specifically told that it can be used for room and board.
There is a tax “loop hole” available. 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. You cannot do this if the conditions of the grant are that it be used to pay for qualified expenses (usually tuition).
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.
