Q. On each return, enter only the expenses you want to use. Does that include just the Other Expenses or also tuition because I though the 1098 T had to go on the parents form?
A. That includes tuition and all expenses. "The 1098 T has to go on the parent's form" is not technically correct. All that statement means is that only the parent can claim an education credit (because the student is his dependent)*. So, $4000 of the tuition must go on your return, to claim the AOTC. The rest can be allocated as needed.
Q. Would it better to have us use enough expenses for the AOTC and to cancel out our taxable distribution, thus pushing all taxable income to student's form?
A. Yes, almost certainly, since you have the additional factor (lg med expenses in 2019 and any increase in our AGI will reduce our med deduction from Schedule A). But, the only way to be sure is run the numbers both ways. That's more easily done with the download software that TT online.
I agree, it sounds like the $4986 of the financial assistance from the State office of Voc Rehab was earmarked for tuition and fees and cannot be diverted to taxable income.
*The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction and/or your student has taxable scholarship income. If you claim the tuition credit, you do need to report that you got one (or that you qualify for an exception}. So, that's why "the 1098-T goes on your return".
