In a nutshell,
If all "QUALIFIED" education expenses are paid with 3rd party support (scholarships, grants, 529 distributions, etc.) then the school is not required to issue a 1098-T. Period. IN such a situation the student nor the student's parents (if they claim the student as a dependent) will not qualify for one penny of education deductions or credits. End of that part. Now on to the next.
Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you five calendar years to get that four year degree. With that said:
- Qualified education expenses are claimed/reported in the tax year they are paid. It does not matter what year is paid "for".
- Scholarships, grants, 529 funds and all other educational assistance received is reported as taxable income (initially) in the tax year it is received. It does not matter what year it is *for*. The taxability of that assistance is offset by the *qualified* education expenses they are used to pay for *in the same tax year the assistance is received.*
Moneis received by the student from the collage as a refund, to include the payment of unused schoarships, grants, etc., are taxable income to the student in the tax year the student is paid that money. It does not matter what year the refund is *for*.
If the refund is for out of pocket expenses (and *only* out of pocket expenses) paid in the same tax year the refund was received, then it's "as if" the out of pocket expense was *never* paid in the first place.
