Why is TT giving me the Tuition & Fees Deduction?

[alan21]

My child's school pays all tuition ($34,500).  Box 1 of 1098-T also includes $2,325 for tuition for study abroad for a total of $36,825.  Box 5 shows only the $34,500 in scholarships provided by the school to cover tuition and nothing else.  Books total $200.  Room & Board costs total $10,800.  The school provides a $6,000 housing grant and my child receives a $3,500 outside scholarship, all of which are applied to room and board, leaving $1,300 paid out-of-pocket for the remainder of the room and board.  In addition, there was $2,975 in other expenses for the study abroad (travel, room, board), which I just added in as room and board in TT.  TT asks about other scholarships and grants (not reported on 1098-T) of which I input $9,500 (housing grant & outside scholarship) and also input that these were all used toward room and board, which will be taxable income on my child's tax return.

I'm confused on how TT is figuring the education credit.  Tuition is 100% covered by school scholarships, except for the study abroad tuition of $2,325.  The only other qualified expenses are the books for $200, resulting in total qualified expenses, not covered by scholarships, of $2,525.  It seems like the $2,525 could be applied toward getting most of the American Opportunity Credit, which pays 100% of the first $2,000.  Yet, TT has applied the Tuition and Fees Deduction instead.

Any thoughts on this?  Thanks so much for your help.

[JotikaT2]

It depends.

TurboTax typically utilizes the deduction or credit that yields the highest tax benefit for your particular situation.  

You can review the results for your particular case by doing the following:

Go back into your federal interview section.

1. Select Deductions & Credits
2. Select Expenses and Scholarships (Form 1098-T)
3. Select Continue through the pages until you see Next, We'll See Which Deduction or Credit Will Save You the Most
4. Select Maximize Your Tax Break
5. You will see the following screens showing what you qualify for:

On this page, select Show Me Results For What Else I Qualify For.

When you do this, you will see the following screen that will tell you the amount of the other credits/deductions available and the amounts you would get if used those options instead.

Select More Info to get more details on how it applies to you.