Hi Carl, I wonder whether you can answer me this question: It is not as simple as it looks. My child, who is my dependent, has excess scholarship in his 1098-t and turbo tax interview asks me how much of the scholarship money was paid for non educational expenses. The bursar office received the college aid funding and our own on-line payment at the same time and randomly applied the payments to various items of my child bill. The college aid is not restricted. I know how much of the scholarship the bursar applied towards room and board because the bursar sent me detailed ledger. The question is whether I can ignore that ledger, and split it in turbo tax between education and non education the way that is most beneficial to me tax wise? Specifically, suppose the bill was $10,000 tuition and $10,000 room and board, and it was paid using $15,000 college aid and $5,000 on line payment by us. Ideally the bursar would have applied $2,000 of our money towards education and the other $3,000 of our money towards room and board; and would have applied $8,000 of the aid money for education and $7,000 of the aid money for room and board. Then we would get maximum education credit and only $7,000 of the aid money would be taxable income to my child. But instead the bursar used $5,000 of our money for education; therefore $10,000 of the college aid was used for room and board and becomes taxable income to my child. Can we ignore the random way in which the fundings were applied and still claim that only $7,000 of the scholarship money was used for room and board (and the other $8,000 of the scholarship used for education)?
