"She did have income ( $12885.64) as well because she was working." She's looking at about $480 more in tax in order for you to get the $2500 credit. The "kiddie tax" will apply because of the hybrid nature of scholarship income. But, that was already gonna happen.
Q. Does it make a difference that one of the scholarships she got, she could use it on qualified or nonqualified expenses?
A. Yes. That's what makes it acceptable to use the loop hole. You are not allowed to switch "restricted" scholarships to taxable income.
