There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his 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 $10,400 in box 5 of the 1098-T and $7700 in box 1. At first glance he/she has $2700 of taxable income and nobody can claim the American opportunity credit. But if she reports $6700 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5700 of taxable scholarship income, instead of $6700.
If you or your parents have already claimed the AOC four times, then you can't do it again. You could claim the Lifetime Learning Credit (LLC) instead, but the math doesn't work as well. The LLC is 20% of tuition paid (books & computers don't count) and you have to claim all $10,400 as income. Assuming a 12% tax bracket, only about $600 of savings vs. about $2100 with the AOC.
