For example:
The 1098-T form shows an $8,000 middle-class scholarship recorded in box 5 and $5,000 in box 1. From this scholarship, $7,000 will be reported as taxable income, while $4,000 is allocated for out-of-pocket tuition expenses to qualify for the American Opportunity Tax Credit (AOTC). This leaves $3000 available for other expenses. But since I’ve already pulled 529 funds to cover all living costs, including room and board, that extra $3000 is just sitting there.
Is it permissible to keep the $3,000 purely as taxable income without actually spending it, and if so, could this decision result in any tax penalties?
I appreciate any answer you can provide on this.
