Thank you so much Carl for your very thoughtful response! Just to be clear, we don't have 529 or anything else. Only FINANCIAL AID provided by the college and also a MERIT scholarship provided by the college. Both are sent from the college directly to the bursar office of the same college. So: 1. You are saying that no matter what the bursar office did, I should still not claim any educational expenses, right? That I cannot decide what part was used for qualified education expenses and what part was applied toward other expenses (and so taxable). And also 2. when my child inputs the 1098-T in his own tax return, then his taxable income due to the 1098-T should be the scholarships, minus the college educational expenses, minus our out of pocket costs of text books, right? Even though the scholarships never actually paid directly for our out of pocket text books, since the bursar naturally applied the scholarship to charges on my student bill which included education and room and board? Finally, do you know if my child should report this taxable income also to the state in which the college is located, which in this case is Illinois? My child is not a resident of that state. Thank you very much!
