I graduated from college in May 2017. Before this year, my parents always claimed me as a dependent and reported my 1098-T forms on their tax return. This year, I do not qualify as a dependent, so I have to report my 2017 1098-T form on my tax return. In the form, there are no amounts listed in boxes 1 or 2. That is because my 2016 1098-T included my Fall 2016 and Spring 2017 expenses. The school reports expenses based on when they billed, not when they were paid. However, scholarships are reported based on when they are disbursed (paid). Therefore, my 2017 1098-T form does include a scholarship of $4,680 because it went towards my Spring 2017 semester expenses. For reference, my 2016 1098-T form reported an amount billed of $45,000 and a scholarship received of $11,000 (this was the scholarship amount that went toward my Spring 2016 and Fall 2016 semesters). My parents received an education credit on their 2016 return for the qualified expenses reported on my 2016 1098-T form.
If I report the scholarship as listed on my 2017 1098-T form, my tax refund decreases significantly. However, on TurboTax there is an option to indicate that a scholarship went towards expenses reported in a previous year. I selected this option and noted that the entire $4,680 went towards expenses reported in 2016. This neutralized the effect on my tax refund. However, I'm confused by a comment in the "learn more" section for this step:
My questions are as follows: 1) The comment says I "may" need to do this. How do I know if I have to? 2) How does one "recapture" a credit from a previous year? 3) If a credit needs to be "recaptured," how would that work, given that my parents received the previous year's credit?
"You may also need to recapture any education credit or deduction taken in 2016 that would have been disallowed in 2016 due to the additional $4,000 of scholarship income allocable to 2016 education expenses."
Since you didn't receive the education credit in 2016, you would not have to file an amended return.
Your parents could open TurboTax for 2016 and add your $4000 scholarship to see if it changes their refund. If so, they could amend their 2016 return to repay the extra credit received.
This is what is meant by 'recapture the credit'. In other words, they got a credit in 2016 that they may not have qualified for if the Scholarship amount shown on your 2017 1098-T had been entered in 2016, as you indicate it belongs to (screenshot).
Edited 3/25/18 5:48 pm
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