Q. Can that $1200 stipend be put toward the qualified educational expenses at University A to avoid paying taxes on it?
A. Yes.
Q. Also, university A is in our home state of NC. University B is in Michigan. Will she need to file taxes in both states?
A. No. Taxable scholarship is considered income sourced in the student's home state, not the state the school is located in. But, that's an academic question; she has no net taxable scholarship after allocating the School B scholarship to School A tuition.
She does need to enter either of the 1098-Ts, on her taxes as we know none of it is taxable. So, she should be able to continue with the free edition. You enter both of the 1098-T on your tax return to claim tuition credit. For simplicity, you only need to enter School A's 1098-T.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your or the student's tax return. If you claim the tuition credit, you do need to report that you got one.
