You didn’t get the credit because you had no expenses. Everything was covered by the scholarship. There is a legal way around this. Let the student pay more in tax by not using 4000 of scholarship and pay the extra tax which is more than outweighed by you claiming the 4000 in expenses. Remember that the 1098-T is an informational form so you can report values that differ from those that you see on the form. In the student’s return in the 1098-T form in the program enter 5784 in Box 1 which represents total qualified education expenses. In Box 5 enter 21502 which accounts for the increase in the student’s taxable scholarship amount since you are reporting that 4000 of the scholarship was not used for education and instead you paid that amount yourself. Look on line 8 of his 1040 and you should see the 15718 taxable income. Be sure that you checked the box on his return saying that someone else will claim him.
Now on your return in the education credit section just enter 4000 as expenses. You don’t have to do anything else and you should see your 2500 credit.
If you are interested download Pub 970 which has examples of what I described.
