While reading the 2016 version of IRS form 970 regarding eligibility for the AOTC, they note that you can claim the tax credit if you list part of your scholarship as income regardless of whether or not your college used part of your scholarship money to pay off qualified education expenses. The following paragraph is confusing however:
"Coordination with Pell grants and other scholarships: You may be able to increase your American opportunity credit when the student (you, your spouse, or your dependent) includes certain scholarships or fellowship grants in the student's gross income. Your credit may increase only if the amount of the student's qualified education expenses minus the total amount of scholarships and fellowship grants is less than $4,000. "
Does this mean that if I had qualified expenses of $5000 and my total scholarship money was $10,000 I wouldn't be able to list part of scholarship as income and claim the AOTC? If instead I had qualified expenses of $5000 and a total scholarship of $7000 then I could claim the AOTC?
