Parents paid $6000 in tuition in December 2024 for spring semester 2025. In January 2025, the college awarded a scholarship in the amount of $6000 for spring semester 2025 and refunded the $6000 that parents had paid in Dec 2024.
According to IRS publication 970, if the student received the refund prior to filing the 2024 return, the qualified education expenses for 2024 should be reduced by this amount. "If anyone receives a refund after 2024 of qualified education expenses paid on behalf of a student in 2024 and the refund is paid before you file an income tax return for 2024, the amount of qualified education expenses for 2024 is reduced by the amount of the refund."
I would assume that in 2026, this refunded amount will appear in Box 4 of the student's 1098-T, which means the student and parent may need to adjust their 2024 taxes if any portion of this $6000 was used to claim the AOTC for 2024. Hence, I'm initially thinking the student and parent should not include this $6000 payment towards calculation of AOTC for 2024.
However, this requirement to reduce 2024 QEE by a refund received in 2025 is directly contradicted by the TIP on page 15 of IRS publication 970, which states "If you pay qualified education expenses in both 2024 and 2025 for an academic period that begins in the first 3 months of 2025 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2025 instead of reducing your expenses for 2024."
The student had qualified educational expenses in 2024 and also in 2025. Does the option to reduce QEE for 2025 instead of 2024 apply if the student already received the refund prior to filing the 2024 tax return? Can the student (and parents) CHOOSE whether or not to calculate the AOTC for 2024 using the fees paid in 2024 toward spring semester tuition or are they REQUIRED to reduce the qualified education expenses for 2024 by the amount of the refund if the refund is received prior to filing the 2024 return? Can the family choose to simply follow the publication tip to apply the $6K tuition paid in December 2024 towards the 2024 AOTC, then simply reduce the 2025 QEE by this same $6000 when filing the 2025 return in 2026?
