Q. From where did you get $6,000 as income from this scenario?
A. $4000 is the maximum amount of tuition needed to claim the maximum AOTC ($2500).
Since the student, in the example, already had $2000 taxable scholarship, he needs add $4000 more because the parents are going to use $4000 to claim the credit. He can no longer claim that that $4000 was used to pay tuition. You can't "double dip". That is you can't say you paid $4000 of tuition and claim the AOTC and at the same time say the tuition was paid by scholarship, so the scholarship is tax free.
How to enter in TurboTax (simplified workaround):
On your return, just enter $4000 of tuition. On her return, just enter $6000 of scholarship (no tuition or other expenses). When asked how much of the scholarship was used for room and board, enter $6000. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B. That just the gimmick for making it taxable, without having to enter everything and making it complicated.
