Q. How much would my son have to take as income for us to get the credit?
A. $6359*.
3989 + 360 = $4349 (qualified expenses) -$4000 used by the parents = $349 can be allocated to the scholarship. $6708 - 349 = $6359 of the scholarship is allocated to non qualified expenses (e.g. room & board) and becomes taxable income to the student.
Q. Can I submit an amendment with the loophole and get the credit?
A. Yes, can and should. Wait for your first return to be fully processed before filing an amendment. Your son does not have to wait for all that to happen before he files.
*Some of it will be subject to the kiddie tax (when a kid's income is taxed at the parent's marginal rate). The family still come out way ahead, The American Opportunity Credit (AOC) is 100% of the first $2000 of qualified expenses and 25% of the 2nd $2000.
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.
Taxable scholarship goes on line 8r of Schedule 1. TT handles that.
