You will have a chance to report all your expenses.
Go to the Education Section and start on Expenses and Scholarships (Form 1098-T). Go through the entire interview, and answer all of the questions carefully. Only when a scholarship exceeds expenses is it taxable.
The IRS provides a list of qualified education expenses in general. To summarize from IRS Publication 970, page 6:
Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:
• Tuition and fees required to enroll at or attend an eligible educational institution; and
• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution.
These items must be required of all students in your course of instruction. Expenses that don't qualify. Qualified education expenses don't include the cost of:
• Room and board,
• Travel,
• Research,
• Clerical help, or
• Equipment and other expenses that aren't required for enrollment in or attendance at an eligible educational institution.
Per the IRS, Tax-Free:
If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free. Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:
- You're a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
- The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.
