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Get your taxes done using TurboTax
What are your additional amounts for textbooks/software required for the classes?
For student 2, you have 5609 tuition + 1100 computer = $6709 expenses less $2400 scholarship = $4309 net qualifying expenses. That is more than the $4000 (not $2500) you need to get the $2500 maximum AOTC. Student 2 does not need to declare any of his scholarship as taxable.
You enter his 1098-T, on your return and enter $1100 at "other education expenses". TurboTax calculates the max AOTC.
For student 1, You could use those book-software expenses. 7828 + 800 = $8628 -7255 = $1373. Student will currently have to declare $2627 of his scholarship as taxable.
The simple way to enter this on your return, in TurboTax (TT), is enter a 1098-T with $4000 in box 1 and box 5 blank. On his return, enter a 1098-T with 0 in box 1 and $2627 in box 5.
Theoretically, TT can calculate all this, without the "simple way", but I have seen too many mistakes, here in this forum.
You must enter the taxable scholarship in the 1098-T section, not as other income. "Other income" is unearned income and will get taxed.
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). It is not earned income for the kiddie tax and other purposes (e.g. EIC).
Taxable scholarship goes on line 8r of Schedule 1, from which TT treats it as hybrid income.
Technically, the student is not even required to file, because his "earned income" is less than $14,600. But, you may want to have him file to document the reporting of the scholarship as income.