Q. During the review of one of my child's return I get this question: Should I enter the amount I used to get the AOTC or the total amount of scholarship I made taxable, which includes the amount I added in order to use bonds or something else.
A. It depends.
TurboTax (TT) knows your student is not eligible for the AOTC, on his return because he has earlier indicated that he is being claimed as a dependent. So, the purpose of this question is to determine how much of the scholarship is taxable. If you already told TT that but indicating that much scholarship was used for room and board, don't duplicate here. Don't enter anything at this screen.
There's actually a short cut when doing the student return, in this situation. Enter the 1098-T with 0 in box 1 and the taxable amount in box 5. Then, you don't have to enter any other amounts.
Since, this can get complicated be sure to verify that the correct taxable scholarship amount gets entered on line 8r of Schedule 1.
You said "I was just trying to understand the limits. It still seems odd that it can exceed the bond value and the R&B."
I'm not sure what that means. Limits of what? What is "it"? The only limit on making scholarship taxable, is the amount of the scholarship (unless the scholarship is partially or totally restricted).
