@Lunagizzy said:
I have a 2nd child also in college (she qualifies as my dependent and I will claim her). Box 1 of the T-1098 is $6120 and box 5 is $3710 with another $100 for books. If I enter the numbers as is on the T-1098 on my tax return, then I only get $2100 back. She has to file since she had a job last year but made less than $7000 in income for the year.
Q. What portion of her scholarship ($3710) should I put as taxable income on her return?
A. $1600. This, of course, assumes her scholarship is not restricted. The fist $2000 of expenses is credited 100% but the American Opportunity Credit (AOC). The 2nd $2000 is only 25%. So, to get another $400 of credit, the student will have to declare $1600 of he scholarship as taxable, to free up $1600 of expenses for the AOC. $1600 added to $7000 is still not enough for her to incur a tax liability.
Q. How do I adjust the numbers to take advantage of the full $2500 credit?
A. The same as before. Adjusting the previous answer for your 2nd student's numbers:
Enter the 1098-T, exactly as received, on the student's return. Enter book expenses separately. In her interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit". Be sure the amount in that box is $4000 . That will put all her excess scholarship as income on her return.
Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s . The alternate workaround is to enter $4000 less than the actual box 1 amount, when you enter the 1098-T
There's yet another (and simplest) work around. Manually calculate the taxable amount of scholarship ($1600) and enter the 1098-T, on his return, with 0 in box 1 and the taxable amount ($1600) in box 5. In that case be sure the amount in the "Amount used to claim the tuition deduction or credit" box (if it even shows up) is 0.
