1098-T

[maskrunner2]

My son attended a SUNY school, this year full time ( second year). I noticed his 1098-T is very different then last year.  His Box 1 = 10792  His box 5 = 10988.  Does this mean he does not qualify for Amer.Opp. credit since his Scholarships and grants are more then qualified tuition ??  Are all the grants put toward tuition first? If I enter as printed on 1098-T, His (MY)  AOC,  goes down to 101 dollars compared to last years $2000. He is claimed as dependant on my taxes, same as last year.

[Vanessa A]

It doesn't mean he doesn't qualify for any of the AOTC, as there were probably other expenses you paid such as books, computers, etc., but since his scholarships covered his tuition, you would not get the AOC for his tuition expenses. 

If the remaining balance was not used to cover other qualified expenses, your son may need to enter the 1098-T on his return as well as that is taxable income.  If he has no other income and is not filing a return or if the overage was used for qualifying education expenses, such as a laptop or books, then he will not need to enter it on his return. 

[Hal_Al]

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 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 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.