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PM79
Level 2

Tuition on Form 1098-T

My child started her first year of college in 2020 and is living on campus.  My wife and I paid $1,750 for her tuition for her first semester of college.  She received a 1098-T with $19,980 listed in block 1 and $29,250 listed in block 5 of the form.  How do I claim the $1,750 on my taxes?  Also, how does she file the remainder of the amount listed on the 1098-T form on her taxes?  

2 Best answer

Accepted Solutions
KrisD15
Expert Alumni

Tuition on Form 1098-T

You can't claim any of her education expenses unless she is your dependent. 

 

If she is, you can enter the numbers as you listed above and you will get credit for 1,750 of the education expenses and she will pay tax on the excess scholarship over the adjusted tuition amount.  

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Hal_Al
Level 15

Tuition on Form 1098-T

Q.>  Will doing this step end up making it to where our daughter would have to pay taxes on the amounts listed on the 1098 on her return?

A.> Simple answer no.  But it's complicated.  She already has  to report scholarship income, because her scholarship amount is so large.  A little more at 10% is miniscule, since you're getting a 100% credit.  As it turns out, if that is her only income, none will be taxable, since it's under $12,400 

 

Q.> Do I have to do the loophole mentioned right after this step to make this work? 

A.> No. The loop hole is instead of , not in addition to. Instead of entering $1750, you enter $4000.  

Entering $4000 will cause her a little tax at 10%.  After $2000,  you go from 100% to 25%.  That is, the first $2000 of expense is a 100% credit for you. The 2nd $2000 is on 25%

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9 Replies
HelenC12
Expert Alumni

Tuition on Form 1098-T

It's already included in Box 1 Payments received for qualified tuition and related expenses  of the Form 1098-T. The $19,980 includes your $1,750 and tuition scholarship of $18,230.

 

You'll enter the scholarship shown on Form 1098-T, Box 5, when you enter the 1098-T. See Where do I enter a scholarship, fellowship, grant, or other financial aid I received?

 

Related Information:

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Hal_Al
Level 15

Tuition on Form 1098-T

Theoretically you enter the 1098-T and then you follow the TT interview and enter your other expenses and adjustments and TT calculates the credit for you and the taxable scholarship for her.  But it's complicated and mistakes do happen.

 

Easier way, just change the boxes to what they should be,  The 1098-T, you enter, is not sent to the IRS.  Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.

 

On your return, enter $1750 in box 1 (add any book and computer costs you paid) and 0 in box 5.

On her return enter 18230 (19980 - 1750) in box 1 and 29,250 in box 5.  

 

But, be aware, there is a tax “loop hole” available to get the full $2500 tax credit. 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 your numbers: Student has $29250 in box 5 of the 1098-T and $19980 in box 1. At first glance he/she has $9270 of taxable income and nobody can claim the American opportunity credit. But if she reports $13270 as income on her return, the parents can claim $4000 (the max needed) 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 $12270 of taxable scholarship income. 

 

To use the loop hole, you essentially have to use a work around in TurboTax (TT). Here's how I would do it. Enter the 1098-T, on your return, but only enter $4000 in box 1. No other numbers. You only enter the 1098-T to get TurboTax to check the proper box on form 8863. 

Enter the 1098-T, exactly as received, on the student's return. Enter book expenses separately.  In his interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is $4000. That will put all his excess scholarship as income on his return.  

Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s . The alternate workaround is  to enter $4000 less than the actual box 1  amount, when you enter the 1098-T

 

There's yet another (and simplest) work around. Manually calculate the taxable amount of scholarship and enter the 1098-T, on his return, with 0 in box 1 and the  taxable amount  in box 5. In that case be sure the amount in the  "Amount used to claim the tuition deduction or credit" box is 0.

 

 

PM79
Level 2

Tuition on Form 1098-T

Thank you for the info and recommendations!  I will try to figure out which approach I will take and if I have any questions I will be sure to ask.  

PM79
Level 2

Tuition on Form 1098-T

(On your return, enter $1750 in box 1 (add any book and computer costs you paid) and 0 in box 5.

On her return enter 18230 (19980 - 1750) in box 1 and 29,250 in box 5. )

Will doing this step end up making it to where our daughter would have to pay taxes on the amounts listed on the 1098-T and do I have to do the loophole mentioned right after this step to make this work?  We don't want to screw over our daughter to claim the $1,750. 

 

 

KrisD15
Expert Alumni

Tuition on Form 1098-T

You can't claim any of her education expenses unless she is your dependent. 

 

If she is, you can enter the numbers as you listed above and you will get credit for 1,750 of the education expenses and she will pay tax on the excess scholarship over the adjusted tuition amount.  

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**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

Hal_Al
Level 15

Tuition on Form 1098-T

Q.>  Will doing this step end up making it to where our daughter would have to pay taxes on the amounts listed on the 1098 on her return?

A.> Simple answer no.  But it's complicated.  She already has  to report scholarship income, because her scholarship amount is so large.  A little more at 10% is miniscule, since you're getting a 100% credit.  As it turns out, if that is her only income, none will be taxable, since it's under $12,400 

 

Q.> Do I have to do the loophole mentioned right after this step to make this work? 

A.> No. The loop hole is instead of , not in addition to. Instead of entering $1750, you enter $4000.  

Entering $4000 will cause her a little tax at 10%.  After $2000,  you go from 100% to 25%.  That is, the first $2000 of expense is a 100% credit for you. The 2nd $2000 is on 25%

View solution in original post

PM79
Level 2

Tuition on Form 1098-T

Thank you for the help!

dbpulido42
New Member

Tuition on Form 1098-T

I am doing the IL state income tax for my grandson.  He hAS FORM 1098-T payment received for  tuition and related expenses is $7,281.00.  How do I show it as a deduction in his state tax return?

Hal_Al
Level 15

Tuition on Form 1098-T

 Illinois does not allow any deductions or credits for college tuition or expenses. 

Reference: https://www2.illinois.gov/rev/questionsandanswers/pages/52.aspx#:~:text=No.,for%20college%20tuition%....

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