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Education
-"I did not take the American Opportunity Tax Credit on my return, because all of our payments were from a 529 (and that would be double dipping)"
--You can claim the AOTC. You avoid double dipping by paying some tax (on the student's return if he was the recipient) on the 529
-"I am putting a zero amount in the box on my son's form, and it continues to say that he does not qualify for the AOTC."
--Student-dependents (almost) never qualify fo AOTC.
-"When I look at the forms, it is listing his scholarship amount under line 1, earned income, instead of line 7"
--That is correct. It goes on line 1 (of form 1040) with the notation SCH. It is not earned income but is treated as earnd income for purposes of the deendent's standard deduction calculation.
-"Should I change what I am inputting on the 1098 and just list the taxable portion of the scholarship. Is that correct?
-- Yes, if you're not getting the correct answer following the interview. Leave box 1, at the 1098-T screen blank and put the taxable amount in box 5. Do not enter any expenses (unless you're also entering a 1099-Q)