I’ve been working to amend our children’s 2018 tax returns so we can claim the AOTC that we missed that year. I now understand that we can have our children claim partial scholarship or 529 funds as income in order to claim the credit. I’m a little stumped how to make the changes to my daughter’s return as we used a combination of scholarships and 529 funds and could use some help.
The 1098-T from her school reads box 1: $13502; box 5: $12695
The 1099-Q is in our daughter's name. 1099-Q box 1: $4544
Total educational expenses: $17370
tuition & fees: $13502
books: $388
room & board $3480
From her 529, we took out just short of the amount needed to cover her educational expenses minus her scholarships. We paid $131 out-of-pocket. Daughter had ~$7500 in earned income from summer jobs for that year as well.
One of her scholarships was a Pell grant and the terms for the others state that the financial aid awarded can be used for payment of tuition, books, housing costs, transportation, and other related educational expenses.
So, I’m not sure how to go about claiming the AOTC. Do I just have her claim $4000 of the scholarship as taxable income? Or does she have to claim the 529 distributions we used to pay for tuition and fees not covered by the scholarship, and then claim a smaller percentage of the scholarship to make up the difference? And depending on the answer, where should this information entered in TurboTax? I found a screen that asks, "Did you pay for room & board with a scholarship or grant?" and also one at the end of the Education section that asks for the "Amount used to calculate education credit."
I read in a past post that you want to report scholarship as taxable income over 529 distributions as it is treated as earned income, for purposes of the standard deduction calculation. I’ve been looking at this stuff for hours and just keep getting more confused. If anyone can offer some guidance, it would be greatly appreciated!
