Q. Will this be ok to file it like this?
A. Yes. That should give you the right calculations on the tax forms. $2000 credit for you ($800 on line 29 of form 1040 and $1200 on line 3 of schedule 3 and included in line 20 of form 1040) and $4141 taxable scholarship for her on line 8r of schedule 1 (then line 8 of form 1040).
Q. And its all legal right?
A. Yes. The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.
Q. She no longer has receipts for the computer and books she bought so i cant enter that?
A. You don't need receipts at the time you file. That's only needed if you get questioned by the IRS. A credit card statement with a charges might suffice for the computer. The fact that the book was required, just knowing the cost might be enough. That said, yes, having receipts is best.
