Q. So it sounds like it's calculated correctly?
A. Yes, probably. We can verify that because you haven't provided your basis and earnings amounts.
Q. and the room and board would not be allowable as a deduction?
A. Room and board are not qualified expenses for a deduction or credit. Room and board are qualified expenses for an ESA or 529 plan distribution, and that was apparently taken into account in calculating the taxable amount.
Q. I am also doing 2019 for her and getting the same result. A small portion is taxable to the student?
A. Yes, if the 2019 numbers are about the same.
Q. No education credit or allowable deduction. Is that correct?
A. Simple answer: yes, since her scholarships exceed her qualified expenses (tuition, fees, and books and other course materials. But, there is a loop hole available.
The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his/her return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
