GI Bill CH 33 and Book Stipend and American Opportunity Tax Credit

[larockmanhere]

I'm wondering if you receive Ch 33 book stipend, can you still claim the deduction of books as expenses on the American Opportunity Tax Credit? The stipend similar to that of the BAH can be used to pay for anything. You can purchase a dog with it if you'd like. It does say it is for Book and supplies, but it is not "restricted" to purchasing books or supplies with it.

The BAH clearly says on the IRS's form 970 that it is not "restricted" therefore you don't have to reduce tuition or expenses toward the AOTC with the BAH received. The money received for the book stipend is just extra money paid, whether you need to purchase books or not, you receive the money. Can you please support your answer with data. I've even read Tax Court cases as part of my search.  The book stipend was intended to be used for educational supplies and books, but was not required (in that you could buy a dog with it). This is the part I can't figure out. Hoping someone can show me the law.

Per IRS:

To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. You don't subtract any amount of the BHA because it was paid to you and its use wasn't restricted.

[Hal_Al]

You can not claim as qualified expenses anything that was "covered" by tax free benefits. It could be argued that the  BAH does not cover books, but the book stipend clearly does. 

Where scholarships are involved, the student can declare some of his scholarship taxable, to allow him to shift expenses to the AOTC.  You don't have that option with V.A. benefits. They are tax free and cannot be declared taxable. 

[larockmanhere]

I get your argument, but I'm still not sure that it is correct. Here is what Pub 970 says.  (I've seen similar argument you've had with Ch 35 and the monthly stipend they pay on that one, KrisD15 disagreed and it appears Turbo Tax expert approved her answer there). Thank you for your response by the way, I do appreciate it. I'm just trying to find the correct story here.

https://ttlc.intuit.com/community/college-education/discussion/dependents-educational-assistance/00/...

"If you qualify for one or more of the education tax benefits discussed in Publication 970, Tax Benefits for Education, chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific tax benefit by part or all of your VA payments. This applies only to the part of your VA payments that is required to be used for education expenses."

The book stipend is not "required" to be used for education expenses, however it is earmarked for education expenses. As I said, if you have no book expenses, you can use the money to buy a dog or a car or anything. Just like the BAH expenses or Ch 35 monthly payment. 

[Hal_Al]

"if you have no book expenses, you can use the money to buy.............."

But, you do have book expenses.

[larockmanhere]

However, it is not "required" to be used for those expenses. It can be. Same as Ch 35, same as BAH. It is paid directly to you (and not the school). I understand your argument, but "required" is my hang up. If I'm not restricted to ONLY being allowed to use it for education, then I'd argue it is not "required" to be used for education expenses. If I had to return any unused portion and prove with receipts that it was used for educational expenses, then I'd agree with you. 

Publication 970:

"You don't subtract any amount of the BHA because it was paid to you and its use wasn't restricted." 

Also Publication 970:

"If you qualify for one or more of the education tax benefits discussed in chapters 2 through 11, you may have to reduce the amount of education expenses qualifying for a specific tax benefit by part or all of your VA payments. This applies only to the part of your VA payments that is required to be used for education expenses."