(Note: Using rounded numbers for ease of calculation)
Hello community!
I'm preparing a 2020 1040x amended return and would appreciate some direction regarding the Tuition and Fees Deduction. This was my dependent's fifth tax year in college (four academic years 2016-2020) so I'm unable to apply the American Opportunity Credit (which in full transparency was the error I made for 2020 that I need to rectify, which is why I'm here).
My dependent's 2020 1098-T states:
Box 1 = $5,500 - I paid for all tuition and have a letter from the university documenting the five payments received by me totaling $6,000 and the specific portions of those individual payments allocated to qualified tuition and expenses totaling $5,500.
Box 5 = $5,000 - A grant specific to university housing as a dorm RA, which the account statement I have from the university aligns with (line item "UHS_RA CA housing - $5,000 Credit") and as I understand it is a non-qualified expense.
Turbo Tax indicates the non-qualified $5,000 grant specifically used for housing will need to be counted as income on my dependent's return (so at this point presuming they'll also need to amend their 2020 income of $10,000 wages plus the additional $5,000 as "other income").
However, I received conflicting direction from the IRS, in that they stated the $5,000 non-qualified for housing would be reduced from my $5,500 qualified tuition expense (which would result in a deduction on my amended form of only $500). Also, that if instead of this reduction on my tax return, my dependent were to add this $5,000 to their income instead, they would not be able to use the standardized deduction ($12,400 in 2020) and be taxed on the full amended amount (in this case $15,000)
I've seen in various threads here in the community with examples where a grant exceeds the qualified expenses, but not one where a non-qualified grant is less than qualified expenses (and specifically in my instance, with conflicting instructions from the IRS regarding who's tax return it should be entered on: the parent's or the dependent's).
Your direction would be truly appreciated. Thanks!
