Yes, enter the 1098-T on your return with $4000 in box 1 and box 5 blank.
On his return, enter the 1098-T with only $8895 in box 1 ($4000 less than the actual amount). Enter the full box 5 amount. He will have $8017 of taxable scholarship, rather than 4017. In his interview, he will be asked if any of the grant was used for room & board. Enter $8017 as the amount used for room and board.
If he had and book and computer expenses, the taxable amount can be reduced.
A couple of caveats:
1. Graduation year is usually the 5th calendar year of schooling. You are only eligible for the American Opportunity credit (AOTC) 4 times in your student's schooling. If you already claimed the AOC four times in the past, you will only be eligible for the lesser Lifetime Learning Credit (LLC), which takes $10,000 of tuition (not $4000 like the AOTC). The credit is 20% of tuition paid. Depending on you and your son's tax rates, you may need to re-think who claims it.
2. If he finished school before May 1, 2025, he may not qualify as your dependent. To qualify as a "qualifying child" dependent, he must have been a full time student for parts of 5 calendar months. He can still be a "qualifying relative"/other dependent, if his income was less than $5200.
See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $15,750 filing requirement (2025) and the dependent standard deduction calculation (earned income + $450). It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.
Here's a post on the five main points on the 1098-T:
https://ttlc.intuit.com/community/college-education/discussion/re-what-do-i-do-with-form-1098t/01/37...
See #4 for the "loop hole" discussion
The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.
