1. Yes. AOTC is only for tuition, books, etc.
The 1099-Q can cover room and board plus AOTC expenses.
2. This is a very complicated area and my goals are always to maximize the education credit and eliminate the 1099-Q. There are a lot of moving parts and this is where tax knowledge comes into play. If you enter the 1099-Q, the program believes you. If you enter tuition instead of room and board, it will take it.
We are here to help with the process. AOTC is only good 4 times then it switches to Lifetime Learning Credit which only covers tuition.
3. You want to:
- enter the 1098-T on your return and have it showing $4,000 of expenses paid by you to get the full AOTC credit of $2,500. A dollar for dollar deduction against your tax liability.
- enter the 1098-T on student return and have it show scholarship income of $3,781 minus books and other supplies.
You don't want to use Misc income when you can use scholarship. The scholarship income goes with wages instead.
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