Q. . My question is, how can I enter this scenario into TurboTax so it will correctly calculate the AOC credit, without using Override?
This answer assumes you are the student, not the parent, you can not be claimed as a dependent and that you are eligible to claim the AOC. Most college age students are not eligible*. It actually easier to enter, in TT, if you are the parent, claiming the credit. Reply back for instructions.
A. Using an example: you have $10,000 in box 1 and $15,000 in box 5. You also have $1000 of qualified educational expenses (QEE) for books and course materials, including a required computer. $10,000 + $1,000 = $11,000 total QEE.
Enter the 1098-T at educational expenses. Enter the book expenses. Answer yes when asked if any of the scholarship was used for room and board, then enter the amount of R&B as $8000. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.
So, that makes $8000 of your scholarship taxable income because R&B are not qualified expenses for tax free scholarship. The $8000 income will go on line 8r of Schedule 1. That means only $7000 of the QEE was paid for by tax free scholarship. That frees up $4000 to claim the AOC. TurboTax will claim the AOC, for you, with this entry technique.
*There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit.
You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.
Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863
