Yes, you should deduct the amount from the tuition you are reporting. You should only report education expenses you paid for out of pocket. And yes, you can take the American Opportunity Tax Credit even if you have received scholarships or tax-free income as long as that free money did not cover all of your expenses and you otherwise met the requirements.
Who is eligible to take the American Opportunity Tax Credit? Enter all of your son's education expenses in the Education section and answer the follow-up questions. TurboTax will determine the amount of credit you qualify for. Generally speaking, the IRS only lets you take one education credit or deduction. If you qualify for two or more education credits or deductions, the TurboTax Education Optimizer picks the one that gives you the biggest tax break.
What education tax credits are available?
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