In TT, we claim all my son's scholarship was paid to room and board so all QTP distributions are not taxable. Is it correct? How to report scholarships?

[wxy1971]

My son entered college last fall. He qualifies as a dependent to us and a college student for AOC. We claim him as a dependent and claim his scholarship $7300 and tuitions $11600 on 1098-T for AOC. His education expenses are $12000 including book fees $400. We paid his room and board $11800. We received QTP distributions $18900 on 1099-Q. In TT, when we claim his scholarship was paid for room and board,  all QTP distributions are not taxable. Is it correct? If so, should we report his scholarship as unearned income in Form 8814?

[KrisD]

Since you want to use the American Opportunity Tax Credit, allocate 4,000 of the 12,000 for tuition and fees, towards the AOTC, the credit maxes out at 4,000. 

You don't say who the 1099-Q was issued to, you the owner of the account, or the student. If the 1099-Q was issued to you, and you don't want to pay the tax, you might allocate the scholarship to the room and board, but remember that only the earnings are taxed on a distribution. Also, if the funds are transferred to the school, the 1099-Q will be issued to the student. 

After you enter the forms and click Maximize My Education Tax Break" go back through the "Education Information" section until you get to the last screen, make sure the program is only allocating 4,000 towards the credit. (Or switch to Forms and look at line 17 on the "Student Info Wk".)

Now switch to forms mode and look at "Form 1099-Q" and the student worksheet. 

I can't say what the allocation would be since I don't know what your earnings/basis is on the 1099-Q and I also don't know who the 1099-Q was issued to. If the 1099-Q was issued to the student, allocate the scholarship to the remaining tuition and allocate the distribution to room and board. (less tax)

OR I think if you might be able to allocate only 4,900 of the scholarship to room and board, therefore only 4,900 is taxable to the student and the distribution will still be tax-free. 

If the student needs to report income, it is reported as "Other Income" line 21 of the 1040, not as unearned income on Form 8814. 

CLICK HERE for IRS Pub 970, Tax Benefits for Education 

[wxy1971]

Two 1099-Q forms for fall 2018 & spring 2019 were issued to us and we paid all his tuition exceeding his scholarship. We will file return including everything about my son. I understand we can allocate 4,900 (my son's scholarship) as "other income" on line 21, is it right?