Can I claim the American Opportunity Credit if all my education expenses were paid for by scholarships?

[crystal_lively]

I did not receive a 1098-T from my University because the University said the amounts did not require reporting to me or the IRS. I did not pay any expense out-of-pocket; the entire semester was paid for by scholarships from the University. Still, when I reported all of the amounts in my TurboTax return (amount paid for education expenses, amount of scholarships, amount used for room and board, and course materials expenses), it says I qualify for the American Opportunity Credit. I have never received this credit before and want to make sure that I really do qualify before claiming this credit.

[ChrisJ · Accepted solution]

Students whose qualified tuition and related expenses are entirely waived or paid entirely with scholarships are not required to receive form 1098-T

There are two types of education expenses: qualified educational expense and expense. Room and board is not a qualified educational expense, but it is considered a cost of attendance. Any amount you report as having directed towards an expense will count as taxable income on your return. If reporting this figure results in tax owed, you would then receive a tax credit.

A tax credit is a payment towards taxes owed - you can't use a credit if you've reported no income. Since you directed some of the funds from your scholarship to an expense, you're able to consider this amount income. There are potential tax benefits to doing so - like claiming the AOTC.

In other words: as long as you've entered your information correctly and TurboTax tells us you qualify - you do!

Read more here: https://www.irs.gov/pub/irs-pdf/p970.pdf 

[bvhibb2]

If a room & board scholarship is reported as income and taxed also qualifies you for AOTC can you go back and amend last year taxes where you didn't take the credit because you were told by a tax expert that room & board expenses do not qualify for AOTC?

[amarther]

How do I report my scholarship income as taxable on turbotax? Turbo tax is asking me for a W2 or 1099 MISC where that taxable income was reported. Can I just fill out a W2 with the allotted income if I didn't actually receive one?

[andrebarkholz]

I just talked a lot with a turbo tax expert and we came to the conclusion that you can add money to the amount that you paid for room and board from the scholarship. This amount will be taxed and added to your income.

[squashmire2]

And to add just a bit for TurboTax on 2018 returns, the amount you need to report as going toward "Room and Board" (ie taxable amount to student) must be: Total free aid-Total Qualified Expense+Amount you want to claim toward A.O. C. up to 4000.  If you are a dependent student, your parents will be the ones getting the credit on their return, and on Line 1 of your return you will have the amount of scholarship money you are claiming as taxable.  Assuming you the student are in the 10% tax bracket, the amount you will want to claim from the A.O.C. is likely somewhere  between 2000 and 4000 at the point where it causes student tax owed to go up because this is where the credit on your parent's return may be canceled by the increase in taxes on your return.  Compare various amounts of AOC and the resultant taxes to confirm.