Q. So do you mean that I can report $17936 as tuition/fee, and 15895 grants in my 2024 tax return?
A. Yes. That's apparently a good thing as it gives you $2041 to claim for the tuition credit, instead of only $1120. You can add books and a computer to that $2041. See below for how you can get a little more. The American Opportunity credit (AOC) is 100% of the first $2000 and 25% of the 2nd $2000. So, you already are going to get most of it.
Q. Can I only report the 9068 tuition and fee in my tax return, or do I have to report 17936 as tuition and fee on my tax return?
A. You have to report the $17,936 if that's when the 2025 tuition was actually paid.
The rule for claiming the tuition credit is the year it was paid in. You are allowed to claim first term 2025 tuition, paid in 2024.
But, the 1098-T is not a controlling document. If your actual billing statements show the 2025 scholarship was actually applied in 2025, then you can do it the other way.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income.
If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this)
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2024 expenses".
Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.
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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 the American Opportunity Credit (AOC), 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.
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 American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. 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 $5000 of taxable scholarship income, instead of $6000.
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”.
