The 1098-T will end up being on her return for the scholarship income only - once the correct amount is determined. If you are claiming the education credit, it will also be entered in your return. The entries are very different.
You may want to increase your daughter's income a little to dramatically reduce your tax bill.
Education income and expenses are a very complicated area when done right.
Each year:
- do a quick run through of Whom May I Claim as a Dependent?
- If claiming, (you will this year), check to see if you qualify for any college credits. Currently:
- For the full credit, your MAGI (modified adjusted gross income) is less than $80,000 ($160,000 if you're filing jointly)
- For a reduced credit, your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you're filing jointly)
- There is no credit given if your MAGI is above $90,000 ($180,000 if you’re filing jointly)
- If you :
- qualify to claim education credit, your goal is $4,000 spent on tuition for maximum credit. The IRS allows juggling numbers. See example below.
- don't qualify: Box 5 minus Box 1 minus the additional eligible school costs = amount to go on her return as scholarship income. Nothing on your return.
Example for claiming education credit:
$48,070 in tuition
$1,900 in misc required supplies
Total $49,970 is qualified school expenses. Qualified Education Expenses - Internal Revenue Service
Maximum credit: Claim you paid $4,000 of that money, leaving $45,970 as eligible expenses. This yields up to $2,500 credit for you for $4,000 spent.
Let's say scholarship was $55,000 so more of it went to room and board.
Scholarship - eligible expenses = $9,030 to add to student's income.
For other variations and references, please look at another of my answers for help.
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