Should I report tuition cost if it was covered by financial aid?

[peaceasumadu]

I understand I don't have to report grants used towards educational expenses. But I am not sure whether to report those expenses like books tuition etc., if I did not pay for it out of pocket.

[Hal_Al]

Q. Should I report tuition cost if it was covered by financial aid?

A. Simple answer: No.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit  or possibly your student has taxable scholarship income. 

But, Scholarships that pay for qualified expenses (tuition, fees and books ) are tax free, so they don't have to be reported.  Tuition, fees and books paid by tax free scholarships are not eligible for a tuition credit, so they don't need to be reported.

But, "financial aid" usually includes loans, as well as scholarships and grants.  The money from loans is treated the same  as "out-of-pocket" money.  Tuition, fees, books and other course materials, including a required computer, paid by loans is eligible for the education credits. 

[peaceasumadu]

Thank you so much. That clarifies things.

[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