Ways to maximize AOTC with 1098-T?

[userid5948498]

I have a rather large difference between box 1 and box 5 on my 1098-T. Box 1 is showing $6,533.58. Box 5 is showing $21,401.52. I had a study abroad expense of $3,720 that was not included in box 1 due to my university switching providers in the middle of the year that was confirmed to be a QRTE. Is there anything I can do with these amounts to qualify for the AOTC? My parents will not claim me as a dependent on their taxes this year as I am independent. My total earned income not including this taxable scholarship is right around $36,000.

[RogerD1]

Since your scholarship amount in box 5 exceeds the amount of Payments for tuition in Box 1, you would not qualify for any education credits, but, as you mentioned, the amount of the scholarship exceeding the payments for tuition will be taxable income.

[Hal_Al]

If the scholarship is not restricted,  to paying tuition,  you can declare more of it taxable to free up tuition for the AOTC.

 There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. 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 conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents (you, in this case) can claim $4000 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 $5000 of taxable scholarship income, instead of $6000.

Whether the  study abroad expense of $3,720 is a qualified expense, would depend on more info.  In general, if it was tuition and fees, paid to/through your US school, it is a qualified expense.

[userid5948498]

Thanks for your detailed response. This was the intuitive way I was thinking that would make it possible. With that being said, the TurboTax software is rather unintuitive with how to include those extra scholarships as income on my returns as it just asks for my 1098-T information and then asks how much I want to allocate to Room and Board. 

In your example, would I put in $8,000 in Box 1, $10,000 in Box 5 as you regularly would, and then input $6,000 that she "spent on room and board" to report that as income? Just not sure how TurboTax is plugging these numbers into the forms to get what I need from them. 

[Hal_Al]

Q.  In your example, would I put in $8,000 in Box 1, $10,000 in Box 5 as you regularly would, and then input $6,000 that she "spent on room and board" to report that as income? 

A.  Yes. That is how you tell TurboTax to make that much, of the scholarship, taxable ($6000 in the example).  $4000 of the scholarship will allocate to tuition. Leaving $4000 of tuition to allocate to the AOTC.

 To make some of the scholarship taxable (re-allocate some of the expenses), you must tell TT how much you want taxable by saying it was used for room &board. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.