Deductions & credits

Follow these steps for entry of the loophole:

First, do you qualify for the credit?

• 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)

I am assuming that you qualify since you searched for the loophole.

On your return: Enter the 1098-T with $4,000 tuition and zero scholarship to get the program to give the full AOTC credit. If your student is not filing a return, you may need to include on your return the Kiddie Tax.

Student's return: 

First, do they need to file? If the total taxable student income  (scholarships, 529, work, investments, etc.) reaches $15,750, the student must file a return. You can quickly run through the IRS quiz  Do I Need to File a Tax Return?  But first, let's figure out the scholarship income.

Since the parent is claiming the education credit:

• calculating  the scholarship and filing the 1098-T:
  • Box 1 will be the remainder of the tuition (after the $4,000 you took out - in your case $13,263 - $4000)
  • Box 5 remain the full scholarship amount.  
  • Enter additional expenses, books, other required expenses. 
  • The difference between the scholarship and all the other education expenses here is the scholarship income to the student.

If the student is filing a return, they may need to claim the Kiddie Tax on the Student Return.