Why would a box 2 on a 1098-T have an amount of $925 and box 5 an amount of $900, then tell me I have to file my son's $900 waiver as income on his return?

[KrisD]

Did you get an education credit?

[hayterchristine]

Yes. Lifelong Learning Credit

[hayterchristine]

Is this loophole about 2017/2018 why my other son has 51386 in box 2 and 57574 in box 5

[KrisD]

Could be, when you enter the 1098-T into the TurboTax program, there is a "What if this is not what I paid?" link under box 2 in case what was billed is not what was paid and you can report the amount paid. The IRS required schools use Box 1 rather than Box 2, but it seems few schools have changed their reporting procedures. IRS Pub 970 has some helpful information. Please see original answer for a link to IRS Pub 970.

[KrisD · Accepted solution]

In the situation you describe, the program is using the expenses to give you the Lifetime Learning Credit, which results in the 900 in box 5 to be income to the student. The credit you get may be more than the tax the student needs to pay. 

You can adjust this on your return. Go back into the education section and revisit the "Education Information" interview questions. Answer the questions concerning the student until you get to the last screen which will report the amount of education expenses you have for the year and how much of those expenses you wish to allocate to the credits. If you don't want the 900 in box 5 taxed, and you have a total of 925 as education expenses for 2017, allocate 25 to the credits. 

ALWAYS compare the 1098-T to the student's school account statement. The amount billed (Box 2) may not be the amount paid, and the expenses that were paid in 2017 for classes in 2017 and/or the first 3 months of 2018 is what the IRS bases the credits and other education tax issues on.

CLICK HERE for IRS Pub 970 Education Credits

[Edited 03.221.18 | 9:08AM]