Q. Do I only need to include information pertaining to my 4 year university or do I need to include my pell grants and expense for my community college as well?
A. You do not enter any educational info on your 2024 tax return.
Paying off the debt for previous years education (" I paid off my tuition balance this year, though I haven't been enrolled in classes since 2021") does not count for a tuition credit. The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return.
If your community college classes were fully covered by the tax free Pell Grant, you cannot claim a credit for that either. There is a loop hole available to claim a credit when you're on scholarship. But, it's not as advantageous if you are only eligible for the Lifetime Learning Credit (LLC). The LLC is 20% of tuition paid and is non refundable (it can only be used to offset an actual tax liability. See explanation below.
There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim a tuition Credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the conditions of the grant are that it be used to pay for qualified expenses (Pell grants are not restricted like that.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the tuition credit. But if she reports $10,000 as income on her return, the parents can claim $8000 of qualified expenses on their return.
Books and computers are also qualifying expenses for tax free scholarships. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket. She would only need to report $9000 of taxable scholarship income, instead of $10,000.
