Scholarship for Room and Board

[cctaxquest]

My son has a full scholarship, including room and board.  The 1098-T has

Box 1  $14,000

Box 5  $24,000

The amount of Box 5 scholarships going for Room & Board is $12,700

What is the proper way to get the $12,700 of taxable income onto my son's return?

[Hal_Al · Accepted solution]

There are two ways to do it. Either way is OK and will not get you in trouble. #2 i s more "proper". Enter the 1098-T on his return, in both cases.

1.  At the 1098-R screen, just enter $26,700 in box 5, instead of $24,000. Don't enter any other amounts

2. After entering the 1098-T (exactly as received), follow the interview. You will eventually reach a screen to enter additional scholarship.

That said, why are you disputing the 1098-T.  Just enter it as is and only pay tax on $10,000*.  Box 5 is suppose to include all grants, regardless of what was designated for or used for.

That said, your should be aware that 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 $24,000 in box 5 of the 1098-T and $14000 in box 1. At first glance he has $10,000 of taxable income and nobody can claim the American opportunity credit. But if he reports $14,000 as income on his return, the parents can claim $4000 of qualified expenses on their return.

*None of his scholarship will actually be taxable unless his total income exceeds $12,200. This assumes he does not have investment income exceeding $1100 

[Carl]

I think you've got your terminology wrong here, between scholarships and grants.

A Scholarship can only be used for the qualified education expenses of tuition, books and lab fees. That's it, and there are no exceptions.

A grant can be used for tuition, books and lab fees. However, if the grant letter specifically and explicitly states funds can also be used for room and board, then you're good. But if the letter awarding the grant does not specifically state that funds can be used for "other" education expenses and name those expenses, then the money not used for tuition, books and lab fees is taxable income "to the student", not the parent.

Basically, since box 5 exceeds box 1 (regardless of the reason) you the parent will *NOT* report *ANY* education expenses on your return. But you still claim the student as a dependent if you qualify.

The student will report *everything* related to education on their own physically separate 1040 return.

[cctaxquest]

Thank you, appreciate your response.

[cctaxquest]

Thanks for the information.