Dual enrollment and scholarship and 1098-T, oh my!

[philroy]

My dependent son is a high-school (homeschooled) senior, and he took 2 dual-enrollment courses at our local community college. The cost of the courses was fully covered under Tennessee's Dual Enrollment Grant, which is funded by the Tennessee Lottery. He was sent a 1098-T that shows the tuition amount in Box 2 (qualified tuition/expenses billed) and Box 5 (scholarships/grants). Per the 1098-T, he was considered at least a half-time student.

Because the grant fully covered tuition, do I even need to bother with the 1098-T?

I entered it on his return (he has a small 2-day/week job, less than 20 hours/week), but TurboTax says that it doesn't apply since I claim him as a dependent on my return. I entered it on my return, and depending on how I answer the questions, TurboTax says that the tuition is not a qualified expense and that my son needs to claim the grant as income.

I think the hang up here is the distinction between whether or not he is taking the courses in pursuit of a degree. Of course he's not since he is a high school student, but the courses will apply toward a degree at the university he plans to attend in the fall. So should I answer yes?

The long and short of it is this: I would rather just ignore the 1098-T if I don't need to report the scholarship as income for him. That way I avoid all the weirdness of whether this is classified as American Opportunity Credit or Lifetime Learning Credit and how these 2 courses may impact claiming those credits in the future. He has fortunately received enough scholarship for college that my tax situation this year is going to end up being more complicated than I'm comfortable with.

Thanks for your help!

[Hal_Al · Accepted solution]

You may ignore the 1098-T, since you know it has no affect on either your return or your son's.

The 1098-T is only any informational document. The numbers on it are not required to be entered onto your tax return. 

[vollumt]

what do you mean informational only, isn't the 1098 -T info sent to the IRS...?

[Hal_Al]

Yes, as are other informational documents, like a mortgage 1098. Since these documents are reporting potential deductions, not income, the IRS computers are not matching  them to your return.

[vollumt]

If the info in box 5 is larger than the amount in box 2 will Turbo Tax add the delta to Income...?

[Hal_Al]

Yes, but not exactly. It's complicated.  If the student is your dependent,  the delta is not income on your return, but goes on his return. So, if you know that you are not eligible for a tuition credit, just don't enter the 1098-T when doing your return. Even if you do enter it, TurboTax (TT) will tell you to report the income on his return.

But, there is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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 school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 2. 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.

[TaxGuyBill]

Box 2 means nothing.  Find out what the college was PAID.  As the college for a printout of the financial account of the student.

[vollumt]

Lets try this again, my son is living at home and not employed or earning money. He received Pell grants and  (Calif) State University Grants totaling 10919. One Pell Grant was paid 7/5 2017 for Fall 2016 all others were paid in 2017. These were all checks made out to my son from his school, CSUF. His amount billed for qualified tuition and related expenses was 6686.70 (box 2), (box 7) is also checked but only reflects that the amount in box 1 or 2 includes money for an academic period starting Jan-Mar of 2018.
My son was not planning on filing a tax return since he had no job earnings for the year, so with my filing should I just fill in the 1098-T info into the appropriate boxes in TT or do all numbers need to be reflected on my return since it had already been mentioned that the info on the 1098-T is informational only and doesn't ck with returns. Also the 1098-T says it is to be used to complete Form 8863...One more thing, in the Student Info Worksheet he no longer qualified for American Opportunity Credit or Lifetime Learning Credit and also not for the Tuition and Fees deduction...4yrs claimed on Amer Opp Credit and other two say qualified education expense is zero...Did get the printout and that is what it reflects above...HELP and Thx

[TaxGuyBill]

Throw the 1098-T away.

As I said before, get a printout from the college that shows the financial account of the student to find out what the college received for tuition and fees in 2017, and how much in grants and scholarships the college received in 2017 (hopefully the scholarships/grants will equal Box 5 of the 1098-T).  Those are the numbers that you need to use.
'
If the grants/scholarships are higher than the tuition, that 'excess' amount is reported on the STUDENT'S tax return.

[vollumt]

Ok Thx...recap, the delta between amounts billed for qualified tuition and related expenses,box 2 (plus adding in books,etc...) and scholarships/grants will be input on my sons tax return. He will still show on my return as a dependent and his return will be a 1040ez with only the tuition/grants delta showing as income....?
When I put that info on my return the delta for tuition/grants goes nowhere via Turbo Tax...it's not being added to my income, correct? Anyway moot item if that info is going in his return...so does the info remain in my return and i'm just putting the delta in his?
Thx, even my reply is confusing...

[TaxGuyBill]

Not box 2, use the amount the college was paid (which may not be the same as box 2).

Yes, he will still be a dependent on your tax return.

Yes, the difference would go on your son's tax return.  If his total income (including the taxable scholarships) is less than $6350 in 2017, he won't need to file a tax return.

Correct, that difference will not be on your tax return, it would only be on his tax return.


However, pay special attention to what Hal_Al mentioned above.  In most cases, you can CHOOSE to make up to $4000 MORE of his tuition taxable, which would go on your son's tax return.  Although your son would owe some taxes on that, you would receive up to $2500 CREDIT on your tax return (assuming you qualify for the American Opportunity Credit).

[vollumt]

Wheww...ok CSUF was paid (Pell and State Grants) $10919 in 2017, $2181 of it was for Fall 2016 (adjustment amount ? box for adjustments in Turbo Tax) don't think it does anything...
He's on the six year 4yr degree plan so the American Opportunity Credit won't work, only good for 4 yrs...The difference between the Grants and the Tuition is about $4050 and since he hasn't any other income he's under the $6350 you mentioned and won't have to file...the $4050 should go down with some additional books added in...Let me know if i'm assuming any more of this wrong...Thx Tax Guy Bill...and Hal_Al...where are you guys East Coast, West Coast or In Between...

[vollumt]

Did not hear back from you guys....So should I assume my last correspondence was me making the correct assumptions on what you two mentioned and what I am doing with the numbers..? Thx, TRomV

[Hal_Al]

Yes, that's correct