At tax time it does not matter what money you used to actually pay which expenses. When filling out your tax return, you may allocate the qualified educational expenses to the AOTC, 1099-Q or scholarships as you see fit for the best benefit. TurboTax (TT) theoretically does this for you. But, it's helpful if you have some idea of the outcome. TT determining that some of her scholarship should be taxable is a frequent result.
Q. My other question was just whether my daughter can claim the AOTC if she is still my dependent?
A. No.
While technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out. A student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if she supports herself by working. She cannot be supporting herself on student loans & grants and 529 plans and parental support. It is usually best if the parent claims that credit.
If the student actually has a tax liability, there is a provision to allow her to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that she can be claimed as a dependent, on her return.
For more specific help, please re-post your info, in this format:
Provide the following info for more specific help:
- Are you the student or parent.
- Is the student the parent's dependent.
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Any other scholarships not shown in box 5
- Does box 5 include any of the 529/ESA plan payments (it should not)
- Is any of the Scholarship restricted; i.e. it must be used for tuition
- Box 1 of the 1099-Q
- Box 2 of the 1099-Q
- Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)?
- Room/rent & board/food paid. If student lives off campus, what is school's R&B on campus charge (you can claim the lesser of the two)
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
- How much taxable income does the student have, from what sources
- How much of the AOTC are you eligible for?
- Is the student an undergrad or grad student?
- Is the student a degree candidate attending school half time or more?
