The Turbotax education credit optimizer doesn't properly adjust the taxability of scholarships to maximize the credit.

You have to use a workaround to make that happen.  After entering the 1098-T, with an amount in box 5,   you will be asked how much of the scholarship was used for room & board.  At that point enter the amount you want to be taxable. 

 

If you are the parent, the student will also have to do a similar adjustment on his tax return. 

This is my point exactly.  You shouldn't have to make a workaround.  The optimizer should do this for you.  How do we get Intuit to fix it?

Q.   How do we get Intuit to fix it?

A. You don't.  I have their attention and I've been unable to do it.  There just too many scenarios in education. 

There are three things you can do with your Qualified educational expenses (QEE):

1. Allocate then to scholarships (so that the scholarship remains tax free)
2. Use them to claim an education credit
3. Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable

TurboTax allocates QEE, in that order, until you tell it otherwise. TurboTax allocates QEE, in that order, but it doesn't do a very good job.  It's best if you have some idea of the outcome expected, when you make your entries. 

 

I called entering the scholarship, at room & board, a "workaround".  Technically it's not.  That's just how you tell TT how much of the scholarship was  allocated to non qualified expenses, making it taxable. 

So, at a minimum, if they can't fix it, they should at least remove the fancy animated dialog that claims to "maximize" the credit and replace it with a dialog box that says "Some taxpayers will need to claim some or all of their scholarships as taxable in order to maximize their tax credit.  We don't do that calculation for you."  Because, right now, they're lying to a subset of taxpayers when they tell them they received the maximum credit and it was "maximized."

Declaring your student's scholarship  taxable is optional, on your part.  Although it's a smart move, for most people, it's not something you should expect the software to do for you automatically.  In particular, some scholarships are restricted and not eligible to be shifted to taxable. 

 

That said, I have passed your suggestion along to TT.  

Fine, include a link to the IRS guidance.  My point is, don't tell the end user you "maximized" something when you ABSOLUTELY DID NOT maximize it.  Tell them they may have more work to do.  

Thank you for passing along to Intuit

Trying to maximize the education tax credit. But I am not being prompted to enter scholarships used for room and board after entering the 1098T information. I have been able to provide this information in past TT years.

In TurboTax (TT), enter at:

Federal Taxes Tab (Personal for H&B version)

Deductions & Credits

-Scroll down to:

--Education

  --Education Expenses and Scholarships

      - Click update

      - On the next screen (Your education expenses summary), click Edit

      - On the next screen (Here's Your education  summary), click Edit next to Scholarships/Grants

          Follow the interview, you'll get the screen "Did you pay for room & board with Scholarship/Grant".                                                   Answer Yes. You'll get a pop up box to enter the amount

 

 

Yes, if you have scholarships and/ or grants, you may be able to increase your credit by indicating this amount was spent on room and board.

 

This is how to do that in TurboTax:

 

1. Select Federal from the left side menu, then Deductions & Credits.
2. Scroll down and look for Education.
3. Find Expenses and Scholarship (Form 1098-T), click on Start or Update to the right. 
4. Use the next few screens to enter your 1098-T, or if it is already there, continue until you get to Did (name) Pay for Room and Board with a Scholarship or Grant? Enter the amount you want to claim as income this year. 
5. Continue to the end of the section.