I have read that because BAH isn't paid directly to the school and we can use it as we wish. Can we use room and board and books as an expense? The 1098T has amounts in box 2 and 5 and also contains amounts for Jan - Mar 2017. Do we need to even report the 1098T?
No, you don't have to enter the 1098-Tm and your instincts are correct. You would have to reduce the amount of any qualifying educational expenses by the amount paid by any GI Benefits. The amounts for Room and Board aren't qualifying educational expenses, but the assistance isn't taxable to you either.
See this link for more information: https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/Are-GI-Benefits-Considered...
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