Deductions & credits

It's complex and the IRS does recommend you use a loophole they left open on purpose.  Our goal is $4,000 that you paid for out of pocket.

Let's start with the Q.

1. It can be used for room and board,  along with education expenses. Determine the room and board (on or off campus using the school's information-even at home) for your student.
2. $13,164 minus room and board = money left for education
3. Locate other educational expenses - books and supplies and other items required to be purchased.
4. Line 2 minus line 3 = remainder to go against tuition.

Check the 1098-T

1. $13,455 paid 
2. We don't really care about the scholarship money right now unless it was marked that it had to go towards educational costs and was not allowed for room and board. If it was not designated, it can be income to the student. $250 income there won't hurt but it can help you with getting more credit. Is it designated or not?
3. Line 1 or line 1 minus line 2 for designated scholarship to education

Final result:  1098-T total - Q tuition amount. Hopefully, you were able to spend more of the Q outside tuition and hopefully the scholarship wasn't designated.

Whoever claims the student, claims the credit. Often, the student doesn't have enough income to help. If your student is full time and under 24, you probably can claim them but best to be sure. Take this quick quiz, Dependent to determine what is correct.

You don't need to enter the Q since it was fully used. Since the 1099-Q was not income, it should not be entered. Tuck the 1099-Q into your tax folder. IRS Publication 970, Tax Benefits for Education states that nontaxable distributions should not be entered. Keep your school expenses, room and board, and how you figured things out with your records.

One of you, based on the quiz above,  would enter the 1098-T and reduce the educational expenses by the amount covered by the Q for tuition. If it is $4,000 or more, full credit. If less, still a credit.